Scandi Markets Ahead
Danske Markets | Jun 29, 2015 04:23AM ET
The precarious situation Greece has put itself in by calling a referendum will undoubtedly trigger distinct risk-off sentiment, as we write in the research paper Grexit - what if? Greek referendum changes the game, 29 june 2015. This is likely to affect Scandinavia with lower rates and stronger currencies vs the euro. The key indicator to look at in the Scandi markets is the currencies – DKK, SEK and NOK relative to the euro. There is a risk that the safe-haven flows seen in 2011-2012 will re-emerge and that this will trigger renewed spread tightening in the Scandinavian markets relative to EU peers (Germany).
Denmark: We have seen a currency outflow over the past three months, but there is significant risk that this will come to a halt and EUR/DKK will drop below the 7.46048- level (the central parity). In this case the money market will be repriced as the probability of a Danish rate hike this year will drop significantly. Furthermore, there is a significant reinvestment need from the coupon and redemption flow on 1 July. Here, some DKK246bn is being paid to investors and this is already beginning to have an impact as the proceeds are flowing into low coupon callable mortgage bonds. Finally, the long end of the Danish government, swap and mortgage curve is now at level or “cheaper” than before the Danish central bank began intervening/QE in January/February.
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