World Business

Low-deficit Danes are good bet

By Bo Nielsen (China Daily)
Updated: 2010-05-22 10:36

A statue of the Little Mermaid, based on a story by Danish writer Hans Christian Andersen, is displayed at the Denmark Pavilion at the 2010 World Expo in Shanghai. [Qilai Shen / Bloomberg]

COPENHAGEN - Denmark's government bonds are proving a better haven than Treasuries or German bunds and its stocks are leading the developed world, as Europe's debt crisis drives investors to nations with low relative deficits.

Debt of Denmark maturing in more than one year has generated the highest returns of any developed government bond market this year, gaining 7.1 percent, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies show. That exceeds the 3.74 percent return for US debt and 5.6 percent for German securities. Yields are lower relative to bunds than any euro-region member, based on generic prices compiled by Bloomberg.

The rally is being fueled by a debt load that's half the European Union average and a bond-sale program that's almost 90 percent complete for this year. Demand for Denmark's bonds rose as the euro-region's financial crisis spread, sending Greek, Portuguese and Spanish securities tumbling. The benchmark Copenhagen OMX 20 Index of stocks is up 13 percent this year.

"Denmark is one of the best places to be for bond investors right now," said Frederic Maquet, a fixed-income trader in London at BNP Paribas SA, one of 10 primary dealers in Danish bonds, banks that deal directly with the Treasury at debt auctions. "It's a sensible country with sensible policies, and I would much rather be long than short Danish bonds at this stage. We'll see more outperformance."

Danish returns are the best among 26 Bloomberg/EFFAS indexes of similar-maturity bonds, in local currency terms. Greek debt lost 9.8 percent this year, while Portuguese securities fell 0.4 percent, the indexes show. Danish bonds due in 10 years or more gained 12.5 percent, the most among 144 indexes that track by maturities.

The performance marks a turnaround for Denmark's bond market, which fell 0.2 percent in the fourth quarter, compared with a 0.1 percent gain for German debt, EFFAS indexes show.

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The yield on Denmark's benchmark 4 percent note due in 2019 fell 10 basis points, or 0.10 percentage point, to 2.78 percent on Thursday. It was 3.84 percent a year ago. The bund yield declined 8 basis points on Thursday to 2.69 percent.

Falling yields help the government lower its cost of financing the budget deficit, which Prime Minister Lars Loekke Rasmussen pledged to balance by 2015. It also supports the nation's $460 billion mortgage-bond market, a sovereign-bond proxy for local pension funds. Mortgage bonds climbed 3.4 percent this year, according to a Danske Bank A/S index.

"If the credit crisis intensifies, we remain a haven," said Jacob Skinhoj, chief fixed-income analyst at Nordea AB in Copenhagen, another primary dealer. "If the crisis abates, there are still plenty of domestic reasons to keep buying."

The central bank raised its 2010 economic-growth forecast this week to 1.4 percent, and to 1.7 percent in 2011, from previous estimates of 1.3 percent and 1.6 percent. Last month's currency reserves of 404 billion kroner ($67 billion) were more than twice the 199 billion-kroner average since the introduction of the euro in January 1999, the government said on May 4.

The euro-region economy will expand 1.1 percent this year and 1.4 percent in 2011, with German growth predicted to be 1.80 percent in 2010 and 1.70 next year, according to analyst forecasts compiled by Bloomberg.

Bloomberg News