DANMARKS NATIONALBANK DANISH GOVERNMENT DEBT MANAGEMENT October 2014
2 Kingdom of Denmark: AAA, Stable Outlook Low government debt Current account surplus and net external assets Reform-oriented policies Strong and transparent institutional framework Competitive economy and flexible labour market Denmark s considerable fiscal flexibility and strong institutional frameworks are conducive to swift policy responses. [S&P, October 2014] Denmark is a wealthy, high value-added and diverse economy. It s track record of macrofinancial stability is reflected by low and stable inflation, current account surpluses and a stable banking sector [Fitch, August 2014] Denmark's Institutional Strength is scored at 'very high (+)', reflecting the forward-looking, proactive policies that successive governments have pursued for many years. [Moody s, June 2014]
3 Outline 1. Government Finances and Debt 2. Borrowing Strategy 3. Risk Management
4 Central-government Debt and Gov. Budget Low debt Stable debt levels since 2012 Re-lending mainly government infrastructure projects is a large part (20 per cent) of central-government debt Low deficits Central-government debt Per cent of BNP 40 35 30 25 20 15 10 5 Approx. structural balance in 2013 0 2003 2005 2007 2009 2011 2013 Debt adjusted for re-lending Debt Government budget balance Source: Budget Outlook 2, August 2014
5 EMU Debt EMU debt less the government s cash reserve, 2002-13 Per cent of GDP 50 45 40 35 30 25 20 15 10 5 0 The government s cash reserve (equivalent to 9 per cent of GDP) is not included in the EMU debt figures EMU debt EMU debt less government cash reserve Sources: Danmarks Nationalbank.
6 Public Gross and Net Debt 2013 debt levels across selected EU countries Sources: IMF WEO April 2014 & EU Commission Spring 2014 Forecast.
7 Outline 1. Government Finances and Debt 2. Borrowing Strategy 3. Risk Management
8 Danish Funding Rules Domestic funding rule Issuance in DKK to cover the deficit and redemptions of domestic debt T-bills and bonds Method: Auctions supplemented with tap Foreign funding rule Issuance in foreign currency to maintain an adequate foreign-exchange reserve and access to markets Dollar and euro loans Method: Syndication
9 Breakdown of Central-Government Debt Central-government debt, end-2013 Nominal Amount DKK billion Per cent of GDP Domestic debt 664 36 Foreign debt 76 4 Pledging of collateral for swaps 4 0 Government funds -95-5 Central-government s account at Danmarks Nationalbank -162-9 Central-government debt 487 26 Re-lending -98-5 Central-government debt adjusted for re-lending 389 21 Note: A positive (negative) figure indicates a liability (an asset).
Strategy for 2014 Domestic issuance 10 Issuance target of DKK 100 bn. (EUR 13bn.) Year-to-date a total of DKK 90 bn. has been issued Issuances are targeted at longer maturity segments, primarily the 10- year segment T-bill programme: DKK 30 billion (EUR 4 bn.) Cash reserve 9% of GDP sufficient to cover more than one year s financing requirement Issuance in 2014 Kr. billion 100 90 80 70 60 50 40 30 20 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2-year 5-year 10-year 30-year 10-year index-linked Issuance target kr. 100 billion
11 Domestic Securities Issuance Method Bonds primarily issued at auctions Normally two auctions each month with two bonds at each auction Dates are announced 3 months in advance. Papers are announced at least 3 work days prior to auctions. No forced biddings by banks Bidding through 12 Primary Dealers T-bills are issued at auctions Normally one each month No forced biddings by banks Bidding through 5 Primary Dealers Switch-facility Buy-back auctions Bond issuance at auctions Kr. billion 25 20 15 10 5 0 8 Jan 22 Jan 5 Feb 19 Feb 5 Mar 19 Mar 9 Apr 23 Apr 14 May 28 May 11 Jun 2 Jul 20 Aug 3 Sep 17 Sep 1 Oct 15 Oct 12 Nov 10 Dec 7 Jan 21 Jan 4 Feb 18 Feb 4 Mar 18 Mar 1 Apr 15 Apr 6 May 20 May 3 Jun 17 Jun 1 Jul 19 Aug 2 Sep 16 Sep 8 Oct 3-month auction calendar Date 8 October 22 October 5 November* 19 November* 10 December* 2013 2014 Bid Sold Note: (*) Tentative dates.
Strategy for 2014 Broad List of On-The-Runs 12 Broad list of on-the-run issues T-bill programme 2-, 5-,10- and 30-year nominal bonds 10-year inflation-linked bond Domestic redemption profile Inflation-linked bond opened in 2012 Linked to Danish CPI. Other features follow international standards, e.g. deflation floor. Current outstanding (October): DKK 35 bn. Included in Barclay s global inflation-linked index. 10-year bond yields New 10-year nominal bond (1,75 per cent 2025) was opened 20 May 2014 Current outstanding (October): DKK 33bn. Source: Bloomberg.
13 Ownership of Domestic Securities Large and developed investor base Access to foreign investors ensures a broad investor base Total non-resident ownership share is 42% (end-august) T-bills primarily held by nonresidents 30-year bond primarily held by the pension sector (87%) Inflation-linked bond primarily held by non-residents (55%) and pension sector (35%) Ownership distribution, all securities Source: Danmarks Nationalbank, August 2014. Ownership distribution, per segment Kr. billion 200 180 160 140 120 100 80 60 40 20 0 Investment funds 7% Non-residents 42% Banks 6% Other 1% Insurance and pension 44% T-bills < 1 year 2-year 5-year 10-year 30-year 10-year linker Non-residents Insurance and pension Banks Other Source: Danmarks Nationalbank, August 2014.
14 DGBs highly correlated with German bonds Correlation with equivalent German bonds, 10-year bonds 1,00 0,75 0,50 0,25 0,00-0,25-0,50-0,75-1,00 DK NL FI AT FR BE ES IT 2012, 1H 2012, 2H 2013, 1H 2013, 2H 2014, 1H 2014, 2H-to-date Source: Bloomberg.
15 Broad Investor Interest in Foreign issuances Purpose: Maintain market access and adequate foreign exchange reserves Strategy: One loan per year Loans may be issued in dollar or euro Only net exposure in euro All foreign issuance include 144a/RegS language One loan in 2014: 3-year USD 1.5bn in March This completed 2014 foreign bond funding 2014 redemption of EUR 2.8bn Total CP outstanding of USD 1bn Max. size: USD 12bn in ECP and USCP Strategy: limited issuance to be in market USD issuance March 2014 Asset Managers 17% Banks 9% Foreign bonds in USD end EUR USD bonds Bond Corporates 5% Size May 2015 1.75 Apr 2016 1.50 Mar 2017 1.50 Total USD 4.75 Coupon: 0.875% Effective yield: 0.902% Mid-swap: -2 bps. Central Banks & Official Inst. 70% EUR bonds Bond Size Oct 2015 1.50 Mar 2016 1.25 Total EUR 2.75
16 Foreign Issuances in 2013 and 2014 3y USD issuance March 2014, region 3y USD issuance March 2014, type Banks 9% Corporates 5% Asia 30% EMEA 44% Asset Managers 17% Americas 26% 3y USD issuance April 2013, region Asia 23% EMEA 48% Central Banks & Official Inst. 70% 3y USD issuance April 2013, type Asset Managers 14% Banks & Other 11% Americas 29% Central banks & Official Inst. 75%
17 Outline 1. Government Finances and Debt 2. Borrowing Strategy 3. Risk Management
18 Low Refinancing and Interest-rate Risk Low refinancing risk on debt portfolio a key priority: Issuance in longer maturity bonds has been high in recent years. Government s account sufficiently large to cover redemptions and interest payments for a year. Duration on total portfolio (ALM approach) with fixed discount factor is around 12 years Target is 11.5 years ± 1 year Refinancing requirement & cash reserve DKK billion 250 225 200 175 150 125 100 75 50 25 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Domestic bonds T-bills Foreign bonds Commercial Paper Cash reserve Duration of portfolio
19 Low Interest-rate Sensitivity Pass through to costs of a 100 bp. permanent increase in all yields Combination of low debt, long-term liabilities and considerable short-term assets ensures very gradual pass-through of higher interest rates to costs Slow pass through: ensures political reaction time in face of adverse shocks mitigates risks to sustainability from sudden surges in risk spreads
Further Information Primary Dealers 20 Government Bonds: Regional: Danske Bank Nordea Nykredit Bank Skandinaviske Enskilda Banken (SEB) Spar Nord Bank Sydbank International: Barclays Bank BNP Paribas Deutsche Bank HSBC JP Morgan Morgan Stanley T-bills: Danske Bank Nordea Nykredit Bank SEB Sydbank Commercial Paper: ECP Bank of America/Merill Lynch Barclays Credit Suisse Citibank Deutsche Bank ING UBS USCP Bank of America/Merill Lynch Barclays JP Morgan
Further Information Terms and Settlement 21 Domestic Bonds: Listing: OMX/Nasdaq Copenhagen Governed by Danish Law Clearing: VP Securities, Euroclear and Clearstream Primary Dealers and clearing houses provide custody services Standard settlement: t+2 days (as of 6 October 2014) Main trading platforms: Inter-dealer: MTS Denmark, Eurex Bonds, ICAP/BrokerTec and Nasdaq OMX Other: Bloomberg, Bondvision and Tradeweb Foreign bonds (EMTN): Programme amount: Up to USD 25bn 144a/RegS language included Listing: Luxembourg Stock Exchange Governed by UK law Clearing: Euroclear, Clearstream and DTC Forms of Instruments: Bearer or registered
Further Information Contact Information and links 22 Contact information: Debt Management Office www.governmentdebt.dk governmentdebt@ nationalbanken.dk Head of DMO: Lars Mayland Nielsen +45 3363 6102 // lmn@nationalbanken.dk Thorsten Meyer Larsen +45 3363 6131 // tml@nationalbanken.dk Danmarks Nationalbank Havnegade 5, 1093 Copenhagen K, Denmark +45 3363 6363 www.nationalbanken.dk Useful links: Ministry of Finance: www.fm.dk Ministry of Economic Affairs and the Interior: www.oim.dk Statistics Denmark: www.dst.dk Economic Council: www.dors.dk MTS Denmark: www.mtsdenmark.dk NASDAQ OMX: www.nasdaqomxnordic.com