Europe’s largest issuer of mortgage-backed covered bonds, Nykredit Realkredit, says speculation the AAA-rated Danish economy may be headed for a debt crisis ignores some basic facts. Near record-low yields at mortgage bond auctions that started last week are proof that most investors agree, according to the bank.
“Funds can speculate on whatever they want,” Soeren Holm, chief financial officer at Nykredit, said. “But I don’t think it’s good business to speculate against Denmark.”
The comments follow reports earlier this month that Owl Creek Asset Management, a $3.2bn New York-based hedge fund, was betting against Danish government debt and buying credit default swaps on Danske Bank, the country’s biggest bank and owner of its second-largest mortgage lender.
It’s not possible to purchase default swaps on closely held Nykredit, Denmark’s biggest mortgage bank.
Founder and investment chief Jeffrey Altman revealed his fund’s position on Denmark during a panel discussion in Florida last month, according to sources.
Danes indulged in “excessive debt-taking” in the years leading up to 2008, when the nation’s property bubble burst, the financial regulator said last month.
Household debt is 321% of disposable incomes, a world record that the OECD said demands a policy response.
Most of the debt is in mortgages, of which about two-thirds are financed using short-term bonds.
Denmark’s FSA is now working with the government on plans to cap bank sales of interest-only loans and mortgages that need to be refinanced annually to help the economy deleverage.
Yet high household indebtedness is only half the story, according to Nykredit and Nordea Bank. “It’s true private debt is large but it has nothing to do with systemic risk in Denmark,” said Anders Aalund, chief analyst for fixed income research at Nordea Markets. “There are a lot of offsetting things, like the high pension savings.”