The Central Bank of Denmark – independently of the ECB lowered interest rates with .1% yesterday effective from today. “Uncle Nils” admits to having intervened on the currency market.

As of May 25th:

CB deposit rate = 0.2%
CB lending rate = 0.6%

CB deposits and lendings

As of May 23rd
2 year Sov. bond = 0.04% (yes correct)
5 ” ” ” = 0.49%
10 ” ” ” = 1.28%

Sovereign Bond Interest Rates

I believe it was Carsten Biltoft of the CB that commented to the press, that he would NOT exclude the possibility of negative interest rates!

We have the following facts to deal with:

1) Interest rate structure is intact – i.e. longer term bonds higher interest than shorter term.
2) 60 bio. DKK added liquidity about a month ago to banks/mortgage banks – in a preemptive strike from the CB.
3) The deposits and lending in the CB – up to 23 rd – not violently influenced.
4) Admitted intervention on the currency market by CB.

It seems like the added liquidity defused the bomb the Danish banks are sitting on which was the intention: The precarious situation of Danish Banks should not be allowed to drag the DKK with them into a ditch.

For once it seems like the explanation, that there is a flight TOWARDS the DKK is the correct assessment. And it will cost the speculators dearly.

It will offer the homeowners a chance to refinance their mortgage at 3½% for a 30 year fixed interest, convertible annuity.

Interest Rate Margins Between Maturities

The interesting part is the sharp drop in the interest rate of the 10 year annuity which indicate a rather sudden shortage. The pension funds and Danish banks demand is known in detail. They have been used to a large extend to cover the currency reserve in the CB – which is considerable (about 500 bio. DKK or between 1/4 and 1/3 of annual
GDP). So that interest drop does indicate a foreign interest and flight to DKK.

As far as I recall: Danish banks are not particularly exposed PIGS – except Danske Banks unfortunate escapes in Ireland.

Presshttp://nationalbanken.dk/dndk/presse.nsf/side/PresseDNN201216300/$file/DNN201216300.pdf

Google Translation of Press: 

24th May 2012
Ref: 2012-13

Interest rate reduction

With effect from 25 May 2012, the Nationalbank’s lending rate, interest rates on certificates of deposit and current account by 0.10 percentage points. The discount rate is unchanged. The reduction occurs after the Nationalbank’s purchases of foreign exchange in the market.

Danmarks Nationalbank’s interest rates are:

Lending rate: 0.60 percent

The interest rate on certificates of deposit: 0.20 percent

Account rate: 0.15 percent

The discount rate: 0.75 percent

Comments may be directed to Karsten Biltoft tel 33 63 60 21