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Denmark to issue inflation-linked sovereign bonds for first time

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  • Denmark to issue inflation-linked sovereign bonds for first time

DENMARK - Denmark is set to issue its first inflation-linked sovereign bonds in the second quarter in response to demand from pension funds and other investors.

At least DKK20bn (€2.7bn) of the new government debt will be offered to investors, with the first auction of bonds having a maturity of just over 11 years.

Ove Sten Jensen, head of the government's debt department, told IPE: "Some investor groups contacted us about inflation linkers, and then we started asking around to find out how great the interest was.

"These investor groups were mainly from the pensions and insurance sector."

Announcing the new bond, the Danish central bank said the insurance and pension sector's demand for bonds offering real return in Danish kroner was expected to grow in future - partly as a consequence of a gradual transition to pension commitments without nominal guarantees.

Inflation-linked bonds have not been issued by Denmark before for two main reasons, Jensen said.

First, Danish government bond issuances have been very low for a longer period because the government was running a budget surplus, and second, investors were more focused on the nominal side.

The global financial crisis has also highlighted the need for a government issuer to have a broader group of products, Jensen said.

Billed as a 10-year bond, the inflation-linked bond will be a bullet loan maturing on 15 November 2023 and linked to the Danish CPI.

As with nominal securities, the bonds will be issued through auctions and then supplemented with tap sales.

The central bank said its strategy was to build up the series to at least DKK20bn over the next few years.

It also said that, to support liquidity, the bond would be covered by a price quotation scheme and included in the government's securities lending facility.

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