Denmark: Fed cut impacts Danish callable – Nordea

In the comparison between Danish callable and US MBS the FED cut yesterday have reduced the advantage for Danish callables to the half. Trump want another rate cut. If he gets his will, the US market is once again open to the world and Danish callable have to compete on equal terms, Anders Skytte Aalund from Nordea reports. 

Key quotes

“The surprise cut yesterday from FED reduced the disadvantage in hedging long-dated US assets with short (3 month) FX forwards with 32bp.”

“The value creation in Danish callables has now moved from an asset-specific factor to being a pure FX forward factor.”

“If Trump gets his will with further cuts as announced on Twitter yesterday the FX forward will move further and reopen the long-dated US bond market for non-domestic investors after being de facto closed for years.”

“We don’t expect a sell of from Foreign investors even if FED cuts soon again. We expect however that Danish callables will have to compete with the US market and therefore we need to monitor this market more closely.”