Foreign investors flock to Danish Mortgage bonds
Inflation and central banks are now the most important and dominating of market themes as the COVID- situation is steadily improving in most developed countries. Inflation numbers are quite high this month - mainly due to the extraordinary development of prices one year ago, when much of the global economy was slowed down as COVID-19 caused a widespread shutdown of businesses.
This year, however, commodity prices are much higher - that goes for oil, copper and even lumber - and the inflation expectations are higher for the forthcoming period. This is the main driver for interest rates this year. As a result, interest rates have been rising throughout 2021 and we could be heading for positive yields in the German 10-year government bonds, currently hovering around -0,20%. The Danish 10-year swap rate, which is very closely related to pricing of the 30-year callable mortgage bonds, is close to +0,5%, up from -0,05% at the end of last year. This along with the spread-widening of callable bonds has changed the favorite bond for home financing from a 0,5% coupon 30-year bond to 1,5% coupon 30-year bonds, thus making it a bit more expensive to pay for home loans.
However, the Danish housing market is strong with lots of activity and nice growth in prices over the course of the last year and there are so far no signs of it slowing down.
Foreign buyers of Danish callable bonds have been adding to their positions throughout the year and have increased ownership to almost 1/3 of the issuance. With lower and relatively more attractive prices, the foreign interest in buying Danish callable bonds seems intact if not poised to attract even more foreign buyers.