Interest rates continued to decline

Interest rates continued to fall in June, helped along the way by statements from the biggest central banks.

German two and 10-year government bonds fell by 0.08% and 0.12% respectively over the month, while their American equivalents fell by 0.16% and 0.12%. The largest part of the drop can be accounted for by the director of the European Central Bank (ECB) Mario Draghi’s speech at the annual meeting of central banks. Here he stressed that the central bank’s members are keeping to their goal of achieving a medium-term inflation level of just under 2%. Over the course of the year the market has lowered its inflation expectations, as expressed through the expected five-yearly inflation levels in five years. This has fallen from 1.6% entering into the year to 1.21%, and the fall gathered speed noticeably up to Draghi’s speech.

These are some of the key points in Chief Strategist David Bakkegaard Karsbøl’s monthly comment for July.

The Danish bonds market stood out by the fact that in June, Denmark became the first country in the world where all issued government bonds were traded at such high prices that the interest rate curve was negative. There can be no doubt that thanks to our moderate national debt, Denmark is now considered to be one of the most financially secure countries in the world.
 The mortgage market also reacted positively to the ECB’s statements, and over the course of the month Danish home owners had the opportunity to take out a 30-year 1% loan with repayments almost at par.
Also Italy, southern Europe’s problem country, benefitted from lower interest rates. The rate on their 2-year government bonds also became negative over the course of the month.

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