Danish Central Bank to issue government bonds before hiking rates

The Danish central bank has been buying close to DKK 80bn since the beginning of April as part of a long process of normalising monetary policy. 

The Danish central bank is expected to start issuing government bonds again before it hikes interest rates. This view is supported by the fact that the central bank in mid-March sharply raised the current account limits, thus reducing the financial sector's cost of the negative CD rate. 

"Against this background, the Danish central bank is not expected to sanction an isolated Danish deposit rate hike until towards the end of the year. The deposit rate is seen at -0.65% by end-2015 and -0.40% by end-2016, while the lending rate is expected to remain at 0.05% through end-2016", says Nordea Bank.

In line with German yields, Danish long-term yields have been rising massively since end-April. Short term, this high volatility is expected to somehow settle down, causing Danish yields to fall back. 

Further ahead, moderate increases can be seen across the entire curve, roughly in sync with Euro-area yields.