The mortgage institutions in Denmark now issues 1,5% 30-year bonds - this brings new opportunities for investors

26.02.2021

• The higher government interest rates have had a hard impact on the Danish mortgage bond market. The interest rate risk is now even higher than in March 2020 and this has reduced the investor appetite for low coupon callable bonds like the 1% 2050 bonds. Now priced at 97,25 down from 101,50 at the beginning of the year 2021.

• The mortgage institutions in Denmark consequently now have to issued 1,5% 30-year bonds - this brings a new opportunity for investors, 1,5% ‘AAA’ bonds at a price below 100.

• The relative pricing of the callable bonds has cheapened quite a bit, and the callable 30-year bonds have not been this cheap since the turmoil last year when the Covid-19 crisis began.

• This is primarily a Danish phenomenon, i.e. the Danish mortgage bonds have lost relatively to swap rates, whereas EUR covered bonds and senior financial bonds have not had the same negative development.

• Homeowners will normally start buying back their mortgage loans once the price is close to a level of 92, which will be the case with just a small interest increase or further spread widening. That in combination with a reinvestment of 60 bn DKK in one month’s time will probably improve the relative pricing of Danish Mortgage bonds.