A $21b debt plan in Denmark is leaving bankers confused

Bloomberg

The biggest Nordic banks have voiced concerns over how Denmark’s debt office is handling sales of its shortest-dated securities.
The debt office in Copenhagen, which is part of the central bank, recently added commercial paper to the list of securities it sells. But bankers at Danske and Nordea, among others, say the office has left them in the dark when it comes to key details. The upshot is that bankers and the investors they advise don’t know how Denmark is planning to structure its short-term debt program, they say.
Denmark has said its program of treasury bills and commercial paper will reach 140 billion kroner ($21 billion) by the end of this year, as the total financing need surges by 200 billion kroner to pay for emergency measures to fight the Covid-19 crisis.
“It remains unclear whether [the debt office] has a preference for using T-bills to cover short-term funding,” said Jens Naervig Pedersen, senior analyst at Danske Bank, Denmark’s largest lender.
“By not being more transparent, the central bank is creating uncertainty in the Danish market, and uncertainty is never good, especially not for foreign investors,” said Jan Storup Nielsen, chief analyst at Nordea Markets in Copenhagen.
In an emailed comment to Bloomberg, the central bank said the ratio of commercial paper to T-bills depends on pricing. It reiterated its plan to rely less on short-term financing as emergency measures are phased out.
“The outstanding amount of T-bills was almost 40 billion kroner at the end of May, with close to 100 billion kroner in commercial paper. Given the borrowing need for 2020, the split between the two programs depends on demand and on the situation in the market at any given time. Both the commercial paper and T-bill programs are flexible forms of financing that can quickly be reduced or increased, depending on the situation. The amount issued in short-dated securities depends on the borrowing need, and the way the agreed Covid-19 aid packages develop. It’s therefore also the strategy that the outstanding level of short-dated securities will be reduced as the temporary Covid measures are phased out,” the central bank said.
Investors in AAA-rated Denmark, which boasts some of the world’s lowest borrowing costs, had been used to scheduled auctions and daily updates from the debt office. But now, they don’t know what maturities to expect, or which currencies the shortest debt will be issued in ahead of time.
“Right now the market is very focused on high frequency data in many regards,” said Troels Danielsen, chief economist at Nykredit Realkredit A/S. “We wonder why the central bank discloses details on T-bills and bonds on a daily basis, whereas only limited information on the CP-program is available in the bank’s monthly balance sheet.”
Denmark has two commercial paper programs, one in euros, the other in dollars. Each program has an upper limit of $12 billion, according to the central bank’s website.
This week, central bank Governor Lars Rohde said the commercial paper program has so far had an average interest rate of minus 0.5%. Using the program provided Denmark with “incredibly” cheap funding,
he said.
Meanwhile, central bank efforts to pump foreign currency liquidity into Danish banks has fallen flat. Of the more than 10 euro auctions the bank has held as part of emergency measures to fight the Covid-19 crisis, none resulted in any transactions. The bank this week sold $300 million in 84-day loans as part of its dollar liquidity program. In six previous dollar auctions, the bank received zero bids.