Denmark needs to generate over $40 billion in financing — more than triple its previous estimate — to help pay for an historic set of emergency measures to fight the fallout from Covid-19.
The financing need will rise to 294 billion kroner ($43 billion) this year, compared with a December estimate for 87 billion kroner, the Finance Ministry said late on Monday. The government will need to tap bond markets and its account at the central bank to generate the cash, it said.
“This shows how huge the bill is,” said Jan Storup Nielsen, chief analyst at Nordea Markets in Copenhagen. “We’ve never before seen such an upward adjustment.”
AAA-rated Denmark has so far been able to tap markets at historically low rates. Its benchmark 10-year bond trades at a negative yield, and its entire yield curve up to 20 years traded below zero not that long ago.
“It used to be the case in Denmark that the biggest headache was finding an excuse to sell government bonds,” Nielsen said. “Now we find ourselves in a situation in which we need to get more than 10% of GDP via the market.”
Denmark is set to get 125 billion kroner of its financing need via bond markets this year. But Nielsen also expects the government to rely on Treasury bills and commercial paper “a lot over the summer, because they have short maturities and are easy to steer.”
After imposing a strict lockdown before many other countries in Europe, Denmark last month started rolling back its curbs on movement, and has since reopened much of the economy amid signs the contagion rate has slowed. As of Monday, the country had reported 563 Covid-19 related deaths, and its fatality rate per 100,000 is just under a quarter that in neighboring Sweden.