Denmark widens embargo on government bond sales

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Denmark’s central bank has confirmed that its auction of a 0.25% bullet loan 2020, planned for 4 February, has been cancelled – this following last week’s notice from the bank and the Ministry of Finance that new calculations show the country sold more bonds than its funding requirement called for through the past year.

In a statement issued 2 February, Danmarks Nationalbank said that not only was the auction of 4 February cancelled, but that “the other provisional dates in the auction calendar of government bonds are cancelled.”

Last Friday, 30 January, the bank said: “Given the foreign currency situation, it is no longer appropriate to reduce the issuance of government bonds over several years. The balance on the central government’s account at Danmarks Nationalbank is more than sufficient to cover the financing requirement in 2015.”

“Danmarks Nationalbank has purchased foreign exchange in the market and reduced the monetary-policy interest rates. This has resulted in a widening of the negative spread between money market rates in Denmark and the euro area. The interest rate spreads for government bonds, however, have remained positive in the longer maturity segments.”

“Danmarks Nationalbank expects that stopping the issuance of government bonds will contribute to reducing the interest-rate spreads in the longer maturity segments and thereby limit the inflow of foreign exchange.”

Effective 30 January, the bank cut its interest rate on certificates of deposit by 0.15% to -0.50%.

Other rates currently include a lending rate of 0.05%, a current account rate of 0%, and a discount rate of 0%.

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