(Bloomberg) -- Denmark auctioned only its second inflation-linked bond in its history, the latest sign that local investors are positioning themselves for a rise in consumer prices in the AAA-rated country.
The central bank's debt office sold 5.07 billion kroner ($841 million) in 0.1 percent inflation-linked bullet bonds due in 2030 after receiving bids worth more than twice as much on Wednesday. The new bonds replace so-called linkers with a maturity of 2023 that were issued in May 2012, when consumer prices were growing at an annual rate of 2.2 percent and the markets were still rattled by the European sovereign debt crisis.
Although Danish consumer prices are now growing at less than half that rate, the debt office is planning to issue more than 20 billion kroner worth of the new linkers.
Jan Stoerup Nielsen, a senior analyst at the Nordics' biggest bank, Nordea, expects “good demand” among Danish pension funds, which mostly hold krone-denominated bonds.
“This fits very well into the pension companies' thinking that there's a fairly good chance inflation will rise over the coming years,” Nielsen said in a telephone interview in Copenhagen.
With the economy now back on track after years of negative central bank interest rates, there's already plenty of evidence that prices are on their way up. Rates on variable mortgages rose from their record lows in the first auction of the year on Monday, reflecting inflation expectations, while Nordea said in a recent note that the Danish consumer price index is bound to be affected by higher rent prices -- the result of a booming property market.
Nielsen also pointed to wage levels beginning to rise as a result of a labor squeeze. Average earnings in the private sector rose at their highest annual rate (1.9 percent) since 2011 in the third quarter of last year, he said.
Nordea is forecasting Danish inflation at 1.2 percent this year and at 1.5 percent in 2019.
To contact the reporter on this story: Nick Rigillo in Copenhagen at nrigillo@bloomberg.net.
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Christian Wienberg
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