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Comment: In negative yield land – Denmark

Investors are so enamoured with this country as a safe haven that they are willing to pay the Danish government to hold their money for two years. In this featured comment, Marcelo Ballvé, discusses the possible reasons for Denmark's unique status

Denmark has 2.24 pigs for every person, more than anywhere else in the world (in fact it’s the only country where pigs outnumber people). It is also famous for its sea-wading cows that produce distinctive beef. It’s the home of Lego toys, and famed designers like Verner Panton, Arne Jacobson, and Hans Wegner.

The current prime minister is a woman, and women enjoy the highest rates of labor market participation of anywhere in Europe. That jobs market is dominated by the state. Nearly 30% of working Danes (upwards of 750,000) cash checks from the government, or from state-owned corporations, a higher rate than anywhere except neighboring Norway, according to OECD data.

(And yes, it is the native land of fairy tale writer Hans Christian Andersen, and philosopher Soren Kierkegaard).

It is also known for its creditworthiness. Danish debt is rated “AAA,” putting it in a fast-shrinking league of top-notch creditors. In fact, Denmark is so creditworthy it has entered the absurd counter-intuitive world of negative yields. That means investors are willing to pay the Danish government to hold their money for two years. When bond buyers lend to Denmark by buying Danish notes they expect less money back when the bonds mature, not more– and they’re OK with that. They’re paying for safety.

Globe’s least-known financial safe-heaven

Denmark’s safe-haven status shows up as a negative yield on two-year Danish government bonds, which today [July 24 2012, ed.] was -.309.

The rarefied negative-yield club includes Switzerland and Germany. Even in this elite group Denmark’s a top performer, only Switzerland edges it out in terms of yield depths. And lets not forget: Germany was just warned by one of the ratings agencies that its Euro-area bad neighborhood discount means it could lose its AAA seal of approval. That makes Denmark unique, because unlike Switzerland, which everyone always talks about, no one ever talks about Denmark. It’s arguably the globe’s least-known financial safe-haven.

I have a policy that I won’t write about a place I haven’t been to.

After a short stay in Denmark this month, I have to admit that I feel no more qualified to write about the country than I did before traveling to lovely, cloudy, cerebral Copenhagen. But the logical implication of the above policy is that I am allowed to write about a place if I’ve been there. So over the next week, I’ll gradually disgorge a few fragmentary observations on Denmark, its economy, and what exactly it is– what special sauce– allows a country to attain such mind-bending creditworthiness.

(Allowing for the possibility, of course, that it may just be a reflection of just how unworthy every other government is, since people have to put their money somewhere).

My hope is that Denmark will allow a conversation on negative yields and safe assets that get beyond the thicket of cliches surrounding discussions of Swiss creditworthiness (boring, dependable, nation of bankers, etc.)

Click here to read the second part of this comment.

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