Danish Bonds Set for Liquidity Boost After Issuance Gets Pooled

(Bloomberg) — Denmark’s AAA rated government bond market is set to get a much-needed boost to liquidity as the central bank takes over financing for the Nordic country’s municipalities.

KommuneKredit, which serves local governments and had total loans and leases of about 200 billion kroner ($29 billion) last year, will immediately stop issuing new bonds as the central bank’s debt office takes over, according to a statement on Wednesday.

“It makes a lot of sense because there’s a need for more liquidity in the Danish government bond market and now it gets more volume,” Jan Storup Nielsen, a chief analyst at Nordea Markets, said by phone. “Liquidity has been challenged because the government is running with such high surpluses, meaning the financing need has been very small for years.”

The central bank said the move will reduce total interest costs for Denmark because the interest paid by the central government is lower than that of KommuneKredit. 

The deal won’t change the debt office’s plans to issue bonds worth 65 billion kroner in 2025, because this year the central bank will finance KommuneKredit’s funding needs by drawing on the government’s account at the central bank. But after that, issuing bonds to finance KommuneKredit loans will contribute “to maintaining a well-functioning and liquid government debt market,” the central bank said.

KommuneKredit said the change won’t affect the terms of its existing bonds. All 98 Danish municipalities are members of the credit institution, which was founded in 1899 and arranges more than 3,000 loans every year.

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