Reuters - Financials

UPDATE 1-Danish central bank refuses T-bills bids, return to bond issuance may be in frame

(Adds analyst on govt bond issues, background)

(Reuters) – The Danish central bank on Thursday refused bids at its treasury bills auction for the first time since May, partly because of little demand, a factor that may force the return of longer-term government issuance in the near future.

The central bank has been using debt issuance as one of several tools in managing the crown currency’s peg to the euro, which came under strong upward pressure at the start of the year after the Swiss scrapped their currency cap.

It suspended government bond issuance in January and at times has refused bids or limited the sale of T-bills, effectively reducing demand for Danish assets and, therefore, the Danish crown.

But the central bank need to sell T-bills or bonds sooner or later to cover the government’s deficit and repayment of a 10-year bond in November, analysts said.

The government will need to repay around 72 billion Danish crowns ($ 10.58 billion) to investors in November when a 10-year bond matures. That will bring the government’s deposit at the central bank to below 100 billion crown.

“We think when the government’s deposits shrink to below 100 billion, it will start to issue government bonds again,” Danske Bank analyst Jens Naervig Pedersen said. “We expect the central bank to reopen its issuance programme of government bonds in December or in January,”

The central bank refused bids for T-bills at three consecutive auctions in February and March and one in May and when it has been accepting bids, they have been at very low amounts. On Thursday bids worth 100 million Danish crowns were refused.

At its last auction, it sold 5.74 billion crowns of T-bills after receiving bids of 11.04 billion crowns which was a far higher amount than in previous months when bids ranging from 100 million to 1 billion crowns were accepted.

($ 1 = 6.8064 Danish crowns) (Reporting by Ole Mikkelsen; editing by Sabina Zawadzki/Jeremy Gaunt)

Reuters: Financials

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