February 23, 2015 / 3:52 PM / 5 years ago

Danish mortgage-backed bond rates stay positive as crown weakens

COPENHAGEN, Feb 23 (Reuters) - Interest rates on Danish adjustable-rate mortgage bonds remained unexpectedly positive on the first day of refinancing auctions on Monday, after a surprise weakening in the crown, lenders said.

“Flex-loans” have provided low interest rates for homeowners since their introduction in 1996 due to investor appetite at the quarterly refinancing auctions. Denmark’s mortgage-backed bond market is the largest in Europe behind Germany’s.

The central bank slashing its deposit rate to -0.75 percent to try to keep the crown tightly pegged to the euro, led some to think banks would be paying borrowers for their mortgages.

Nordea said the auction indicated an interest rate of 0.15 percent on one-year flex-loans refinanced on April 1, compared with the -0.1 to -0.2 percent it had expected.

The Danish crown weakened after the head of Denmark’s Economic Council, Hans Jorgen Whitta-Jacobsen, said on Friday he thought the central bank would go to extreme measures to defend the crown’s peg, including restricting free capital movement.

Whitta-Jacobsen told Reuters in an interview he thought those measures could include restricting free capital movement but that he did not expect the central bank would need to resort to such extremes.

His remarks sent the currency to eight-month lows and Greece’s bailout deal at the weekend boosted the euro, adding to pressure on the crown and lifting yields in Danish bond markets.

“We believe we’ll see rates at the auctions at the current level for the coming days. There’s a higher risk we’ll see higher interest rates rather than lower,” Nordea’s chief analyst Lise Bergmann said.

Nordea analysts say interest rates will be 0.2 percent on the three-year adjustable-rate bonds and 0.5 percent on the five-year bonds.

Danske Bank also said interest rates had been higher than it had expected at the auctions.

The central bank spent more than 100 billion Danish crowns ($15 billion) intervening last month to keep the currency peg, cutting rates four times in four weeks and suspending government bond issuance. (Editing by Louise Ireland)

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