Denmark to issue DKK75bn in bonds next year

• The Danish DMO plans issuance of DKK75bn in domestic bonds, DKK30bn in treasury bills and consequently a draw of DKK30bn on the government’s deposits to meet the DKK135bn total domestic financing need next year.

• The focus will be on a new DGB ’18 opened during H1 15, a new 5Y DGB ’20 opened on 4 February and the DGB ’25.

• The planned issuance will further tighten DKK liquidity at the beginning of 2015.

Today, the Danish Debt Management Office (DMO) released its strategy for 2015. Next year, the target for issuance of domestic bonds is DKK75bn and the target for the outstanding volume of treasury bills end-2015 is DKK30bn. Regarding the issuance of domestic bonds, the DMO will focus on this:

• 2y: A new DGB ‘18 will be opened during H1 15.

• 5Y: A new DGB ’20 will be opened on 4 February 2015. Coupon to be announced in January.

• 10Y: DGB 1.75% 2025 will continue to be build and so will the DGBi 0.1% 2023 (linker).

• 30Y: DGB 4.5% 2039 will be build further.

The DMO states that it aims to focus on issuance in DGB 1.75% ’25, so we expect a significant share of the DKK75bn to be issued here. Further, we expect a significant build up of the new 2Y DGB 2018 and 5Y DGB 2020 series. The issuance in the linker and the DGB 2039 should be more limited.

With a total domestic financing need of DKK135bn, this means that the government plans to draw DKK30bn on its deposits at the central bank next year. The DKK30bn draw on the government’s deposits next year will add to liquidity in the DKK money market over the course of the year. The positive effect will not show before later in 2015. The planned issuance, in combination with net inflow on the government’s account from tax on pension returns and corporate tax, will keep liquidity in the money market tight early next year.

In anticipation of this, Danmarks Nationalbank (DN) today furthermore released a press comment on the recent development in liquidity in the DKK money market and implications for monetary policy. DN basically reiterates that liquidity in the money market can increase through monetary policy lending.

There has been little demand for monetary policy lending since 2009, which means that the rate of interest in certificates of deposits has been determining for money market rates. If the expected tightening of liquidity at the beginning of next year creates a demand for monetary policy lending, DN may resolve to a cut of the lending rate to curb a potential renewed downward pressure on EUR/DKK. The lending rate is currently at 0.20% and DN has stated that the lending rate will remain positive.