Danish Mortgage Institutions Ensuring Liquidity in Bond Sales

In the fall of 2022, significant price fluctuations occurred in Danish mortgage bonds. During the same period, some banks affiliated with mortgage institutions increased their share of bonds purchased from their affiliated mortgage institutions. Mortgage institutions are being urged to ensure they don’t become overly reliant on selling bonds to a single bank.

Key Messages

1. Well-Functioning Danish Mortgage Market: The Danish mortgage market operates effectively, with daily issuances of mortgage bonds ensuring transparent pricing for property financing.

2. Vulnerability in Turbulent Times: Banks tend to increase their purchases of bonds from affiliated mortgage institutions during turbulent periods. This trend was observed in the fall of 2022, with one bank notably acquiring a higher proportion of bonds from its affiliated mortgage institution.

3. Ensuring Continuous Bond Sales: Mortgage institutions need to ensure that they can always sell their newly issued bonds. Dependency on selling to a single bank, especially during periods of significant price fluctuations, could make the Danish mortgage market less robust. Continuous efforts are recommended to secure favorable opportunities for selling newly issued bonds.

Why is it Important?

A well-functioning Danish mortgage market is crucial for the resilience of the financial system in Denmark. Danish mortgage bonds are issued daily for property financing, playing a central role in the Danish real estate market. Financial actors, including banks and pension companies, also use mortgage bonds for liquidity placement and as part of their liquidity reserves. Therefore, it is vital for the Danish mortgage market to remain robust and effective, even during periods of financial unrest.