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DANMARKSNATIONALBANK
DANISH GOVERNMENT DEBT MANAGEMENT
5 July 2016
Kingdom of Denmark: AAA, Stable Outlook
• Low government debt
• Current account surplus and net external assets
• Reform-oriented policies
• Competitive economy and flexible labour market
• Strong and transparent institutional framework
2
“Denmark benefits from high institutional effectiveness, mature political and institutional frameworks that promote fiscal discipline, and a modest government debt burden.” [S&P, March 2016]
“Denmark has a high value-added and wealthy economy, supported by strong institutions with a track record of solid macroeconomic, fiscal and financial stability management.” [Fitch Ratings, February 2016]
“The country’s robust public finance indicators are also supportive of the rating and compare favorably with many AAA-peers.” [Moody’s, November 2015]
3
Outline
• Economic Outlook
• Government Finances and
Debt
• Borrowing Strategy for
2016
Denmark is a Creditor Nation
• Consistent current account surpluses since 1999 and net external assets since 2009
• Well diversified exports across industries and countries
• Main sectors include pharmaceuticals and other manufactured goods including design and high-end products
• Improvement in wage competitiveness
4
Net external assets and current account
Source: Statistics Denmark.
Source: Statistics Denmark.
Exports by region, 2015
0
1
2
4
5
6
8
9
-20
-10
0
10
20
30
40
50
2000 2002 2004 2006 2008 2010 2012 2014
Net external assets Current account balance (right axis)
Per cent of GDP Per cent of GDP
Exchange Rate Peg since 1982
• Fixed exchange regime has been a cornerstone in economic policy since 1982
• The fixed exchange rate is the only monetary policy aim for the Danish central bank
• Euro referendums in 1992 and 2000
• Central rate = 746.038 DKK per 100 EUR with a fluctuation band of ±2.25%
5
Exchange rate
6,0
6,5
7,0
7,5
8,0
8,5
9,0
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Market rate Central rate Fluctuation limits (+/- 2.25 per cent)
Kroner per euro
6
Normalisation of FX Reserves and Government Cash Buffer
• Following large inflows in 2015 the size of FX reserves are now back to more normal levels
• Limited impact from Brexit
• The cash buffer is expected to normalise in 2016
• Kr. 75-100 bn. (equivalent to 4-5 per cent of GDP) is a sufficient liquidity reserve
Fx reserves
Large cash buffer
0
10
20
30
40
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Per cent of GDP
7
Outline
• Economic Outlook
• Government Finances and
Debt
• Borrowing Strategy for
2016
8
Strong Public Finances and Low Government Debt
• Central-government budget surplus in 2014 and 2015
• Strong government budget framework
• Limits for structural deficits and expenditure ceilings
• Effective sanctions against budget overruns
• Low central-government debt
• Declining debt since 2012
• Duration on total portfolio (ALM approach) is around 12 years
• Among the lowest EMU-debt in Europe
Central-government net cash balance
Central-government debt
-8
-6
-4
-2
0
2
4
6
2005 2007 2009 2011 2013 2015
Per cent of GDP
Low EMU-debt
9
-50
0
50
100
150
200
De
nm
ark
Sw
ed
en
Fin
lan
d
Ho
lla
nd
Ge
rma
ny
Au
stri
a
UK
Ire
lan
d
Fra
nce
Sp
ain
Be
lgiu
m
Po
rtu
ga
l
Ita
ly
Gre
ece
Gross general government debt end-2015, per cent of GDP
10
Outline
• Economic Outlook
• Government Finances and
Debt
• Borrowing strategy for
2016
11
The Currency Split – Danish Funding Rules
Domestic funding rule
• Issuance in DKK to cover the deficit and redemptions of domestic debt
Foreign funding rule
• Issuance in foreign currency to maintain an adequate foreign-exchange reserve
T-bills and bullet loans
Method: Auctions supplemented with tap
Dollar and euro loans
Method: Syndication
• Bond issuance target: DKK 65 bn. (EUR 9 bn.)
• Well-known and broad list of bonds:
• 2-, 5-, 10-year nominal bonds
• 30-year bond
• 10-year inflation-linked bond
• Issuance is focused on building up the 2-year and 10-year nominal bond
12
Strategy for 2016Supporting a Liquid Market
Domestic redemption profile
0
20
40
60
80
100
120
140
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 … 2039
Bonds T-bills
DKK billion
Issuance in 2016
0
10
20
30
40
50
60
70
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2-year 5-year 10-year
30-year 10 year index Issuance target
DKK billion
Domestic Bond and T-bill Issuance
• Funding through auctions supplemented by tap-selling directly in secondary markets
• 3 month auction calendar:
• Domestic bonds (twice a month - 1st and 3rd
Wednesday)
• T-bills (twice a month)
• Switches (twice a month)
• Monthly buy-back auctions
• Active DMO role in the secondary markets
• Tap-selling and buying
• Primary dealers are listed in the appendix
13
Bond calendar
Date Auction Type*
12 May Switch operation
18 May Regular
15 May Switch operation
01 June Regular
09 June Switch operation
15 June Regular
22 June Switch operation
T-bill calendar
* Papers are announced Thursday before the auction after consulting PDs
Date Auction Type
11 May T-bill
30 May T-bill
08 June T-bill
29 June T-bill
13 July T-bill
Solid Bid-to-Cover at Auctions
14
0
5
10
15
20
25
30
35
Jan
ua
ry
Fe
bru
ary
Ma
rch
Ap
ril
Ma
y
Jun
e
July
Au
gu
st
Se
pte
mb
er
Octo
be
r
No
ve
mb
er
De
ce
mb
er
Jan
ua
ry
Fe
bru
ary
Ma
rch
Ap
ril
Ma
y
Jun
e
July
Au
gu
st
Se
pte
mb
er
Octo
be
r
No
ve
mb
er
De
ce
mb
er
Jan
ua
ry
Fe
bru
ary
Ma
rch
Ap
ril
Ma
y
Jun
e
2014 2015 2016
Bids Sales
DKK billion
15
Ownership of Domestic Bonds
Ownership, per segment
Source: Danmarks Nationalbank, end-April 2016.
Foreign ownership of domestic bonds
Source: Danmarks Nationalbank, end-April 2016.
• Large and developed investor base
• Access to foreign investors ensures a broad investor base
• Total non-resident bond ownership share is 40 per cent (end-April) 0
20
40
60
80
100
0
40
80
120
160
200
< 1 year 2-year 5-year 10-year 30-year 10-yearlinker
Total
Per cent
Non-residents Insurance and pension Banks Other
DKK Billion
10-year Yield Spreads to Germany
16
Note: Par yields
Source: Nordea Analytics
17
T-bills:
• Danske Bank
• Nordea
• Nykredit Bank
• SEB
• Sydbank
Commercial Paper:
Government Bonds:
Regional:
• Danske Bank
• Nordea
• Nykredit Bank
• Skandinaviske Enskilda Banken (SEB)
• Spar Nord Bank
• Sydbank
International:
• Barclays Bank
• BNP Paribas
• HSBC
• JP Morgan
• Morgan Stanley
ECP• Bank of
America/Merill Lynch
• Barclays
• Credit Suisse
• Citibank
• Deutsche Bank
• ING
• UBS
USCP• Bank of
America/Merill Lynch
• Barclays
• JP Morgan
Further InformationPrimary Dealers
18
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
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
• Main trading platforms:
• Inter-dealer: MTS Denmark, Eurex Bonds, ICAP/BrokerTec and Nasdaq OMX
• Other: Bloomberg, Bondvision and Tradeweb
Further InformationTerms and Settlement
19
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
Contact information:
• Debt Management Office
• www.governmentdebt.dk
• Head of DMO: Lars Mayland Nielsen
• +45 3363 6102 // [email protected]
• Senior Adviser: Thorsten M. Larsen
• +45 3363 6131 // [email protected]
• Danmarks Nationalbank
• Havnegade 5,1093 Copenhagen K, Denmark
• +45 3363 6363
• www.nationalbanken.dk
Further InformationContact Information and links
Annex
20
Denmark in Brief
• Part of Scandinavia in Northern Europe
• Population: 5.6 million
• Capital: Copenhagen (1.2 million)
• Land area: 42,895 km2
• Currency: Danish kroner pegged to the euro
• Government: Constitutional monarchy
• Member of the European Union since 1973
21
Government Debt Management – Danish DMO
• Located in Danmarks Nationalbank
• Borrows on behalf of Ministry of Finance
• Government debt policy
• Borrowing strategy
• Risk management
• Overall management of government funds, re-lending and government guarantees, etc.
• Investor relations
22