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Jan Størup Nielsen, Research Analyst at Nordea Markets, notes that the Danish Ministry of Finance has once again had to revise down its estimate of the central government’s net financing requirement, which will likely not affect this year’s sale of government bonds, but will reduce coming years’ issuance requirement.

Key Quotes

“In connection with the presentation of its Economic Survey, the Danish Ministry of Finance updated its estimate of the central government financing requirement. The 2018 net financing requirement has once again been lowered; this time from DKK 50bn to DKK 31bn. This is even more remarkable given that this figure includes the financing of subsidised housing (DKK 42.5bn). Excluding subsidised housing, the actual net financing requirement is negative by DKK 12bn – an improvement of DKK 47bn since the first estimate in August last year.”

“Despite a reduction in the net financing requirement of DKK 19bn, only DKK 3bn has been shaved off the total financing requirement for 2018. One of the reasons is that repayments of long-term debt have risen as a result of the ongoing switch auctions. The government debt management office has not set any target for these auctions; thus, they contribute to lifting repayments of long-term debt while at the same time boosting the sale of government bonds.”

“The government bond issuance target will likely be kept unchanged at DKK 65bn for the full year. The main reason why we do not expect a reduction is liquidity considerations and the wish to continue to build up outstanding volumes of 2- and 10-year benchmark bonds and the new index-linked bond.”

Central government account with Danish central bank still too large

If our expectations are realised, the government’s account with the Danish central bank will be reduced less than previously anticipated. Based on the above assumptions, the government’s account balance will be DKK 114bn at year-end, which is still some way off the “appropriate” account balance of DKK 75-100bn – even though this year’s financing requirement has been lifted by DKK 42.5bn from the refinancing of subsidised housing.”