Investors in Denmark’s covered-bond market, the world’s biggest, will have to settle for lower coupons or find a new place to put their money as record-low interest rates trigger the largest remortgaging wave in well over a decade.
Property owners with around 110 billion kroner ($16.5 billion) in loans (the figure includes public-housing debt) told their banks by last week’s quarterly deadline that they will redeem the fixed-rate, long-term bonds backing their home loans, according to calculations by Realkredit Danmark, the mortgage unit Danske Bank A/S.
That’s the biggest wave of prepayments since 2005, Realkredit Danmark estimates, and it’s also multiples of the amount that generally gets refinanced in such auctions. Jeppe Borre, chief analyst at Totalkredit, estimates that borrowers usually prepay 20-40 billion kroner each quarter.
Homeowners are replacing bonds with coupons of 2 percent and above for securities with a coupon of 1.5 percent. That’s half the rate on 30-year U.S. government debt.
The development comes as central banks across the globe extend their policies of extreme monetary stimulus.
In Denmark, which uses interest rates to defend the krone’s peg to the euro, rates have been below zero for roughly seven years, which is longer than in any other country.
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