Japanese buy into Danish bond market

Picture: Getty Images ● The world’s biggest covered-bond market has seen a surge in foreign ownership, with Japanese investors in particular emerging as eager buyers.

Most recently, the offshore cash has flowed into the longest maturities in Denmark’s $500-billion (about R5.9-trillion) mortgage-backed bond market. Jacob Skinhoj, chief analyst at Nykredit Markets, says it’s higher interest rates in the US that are behind those flows.

“Japanese investors are starting to sell off US assets,” Skinhoj said. Nykredit, Denmark’s biggest mortgage bank, can see Japanese bondholders are increasing their presence in the market “at least weekly”, he said.

According to Thomas Rasmussen, an analyst at Jyske Bank, foreign investors “are the buyers in the callable segment and they’re controlling the pricing at the moment”.

Central bank data shows offshore creditors hold almost 25% of the Danish market.

Skinhoj says Nykredit is seeing more investor interest from inside the EU, and there’s also a rise in European asset managers buying the bonds on behalf of Japanese investors.

The development may drive the price of Denmark’s 2% callable bond due 2050 over par. That means mortgage banks would have to start offering bonds with a coupon of 1.5%, matching a record low.