DGB auction preview:

10Y 0.5% DGB 2027 March 2017

20Y 4.5% DGB 2039

1
Auction Preview
DGB 2027 and DGB 2039

Wednesday, March 22, 2017, the Danish Central Bank will offer
10Y 0.5% DGB 2027 (992356)
20Y 4.5% DGB 2039 (992232)
Bids can be submitted as from the opening of MTS Denmark until 10.15 CET

DGB27:
Generally some underperformance in DGBs vs DKK swaps during the last couple of weeks
DGB27 currently trades at a pickup of around 27bps above the 10Y German 0.25% 02/27 corresponding to
17bps (MOAD-equivalent) vs the relatively steeper long end of the DBR Gov. curve
ASW spread roll vs DGB25 has widened to 6bps (True ASW vs 6M DKK swap)/9bps (maturity matched)
DGB27 provides a ASW-pick-up of 14 bps vs. German comparables (vs 3M Euribor incl. XCCY).
We see current pricing of DGB27 as attractive

DGB39:
DGB39 provides a yield pickup vs Germany of 14bps
Only minor issuance in the DGB39 in 2016 and no issuance so far in 2017
DGB25/39-YTM-spread has tightened 6-7bps during the last couple of weeks but not relatively vs DKK
swaps or comparables in the long end of the German government curve.
Seen over last month the long end of Danish Gov curve has flattened less than the German curve, reflected
in a widening of 5bps in the DGB39 vs DGB25 vs DBR40/DBR25
DGB39 trades close to flat in terms of ASW spread vs DBR40 (XCCY ASW vs 3M Euribor)
We see current pricing of DGB39 as fair

2
DGB funding status in 2017
Issuance target at DKK 65bn in 2017 - 25% issued so far YTD
Yearly DGB gross issuance
160
The overall issuance target for domestic
140
government bonds is 65bn in 2017.
120 Avg since 2008 :
DKK 98bn
The funding strategy in 2017 is still focused 100

DKK bn.
in the 2Y and primary 10Y nominal bonds. 80
135
60 117 123 124
The issuance policy will focus on growing 40
102
79
103

the outstanding volume of the 2027 bond in 20 40

65 65

32 33
order to support liquidity. The outstanding 0
21

can be increased by use of switch auctions. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

The current 2-year on-the-run series,

DGB18, will be replaced by a new DGB 2020
during 2017.
DGB issuance in 2017
Prior to tomorrows auction year-to-date Issuance in 2017 Expected % - Remaining issuance
Bonds %-distribution
issuances of government bonds amounts to (DKKbn) distribution vs target
DGB'18/New DGB'20 2.0 12% 30% 18
DKK 16.1bn, corresponding to 24.7% of the DGB'21 0.6 4% 1% 0
sales target in 2017. DGB'25/DGB'27 13.5 84% 65% 29
DGB 4.5 11/39 0.0 0% 3% 2
DGBi 0.1 11/23 0.0 0% 1% 1
The relative share of 10Y issuance
Market value 16.1 100% 100% 48.9
constitutes so far 84% of total issuance. % of target 24.7%

DGB39 at auction for the first time in 2017.

3
DGBs vs Germany (yield spread)
DGB YTM spreads vs DBR comparables
30 0
DGBs have in general traded stable vs
25 -10
DBR comparables in terms of YTM-

Nov-19

Nov-27

Nov-39
-20

Nov-21
spreads in the longer end of the curve 20

Nov-18

Nov-23

Nov-25
-30

Bps
Bps

Nov-17
but slightly underperformed in the 15
-40
short end during the last couple of 10
-50
weeks 5 -60

0 -70
0 2 4 6 8 10 12 14 16 18
DGB27 currently trades at a pickup of GOVI DKK vs. DEMgvmt MOAD GOVI DKK vs. DEMgvmt (2W ago)
around 27bps above the 10Y German GOVI DKK vs. DKKswap (6M) (RHS) GOVI DKK vs. DKKswap (6M) (2W ago) (RHS)

0.25% 02/27 but 17bps MOAD- 40

equivalent vs the relatively steeper long 35
30
end of the DBR gov. curve 25
20
15

bps
10
DGB39 trades currently at a pickup of 5
0
14bps above German comparable (DBR -5
-10
4.75% 07/40) -15
-20
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

1Y Cita vs 1Y Eonia DGB 0.25 11/18 vs DBR 3 3/4 01/04/19 DGB 3 11/21 vs DBR 2 01/04/22
DGB 1.75 11/25 vs BUND 1 08/25 DGB 0.5 11/27 vs DBR 0.25 02/27

4
DGB27 vs local swaps and ASW roll
ASW spreads vs 6M Cibor

Generally some underperformance vs -30

-35
swaps during the last couple of weeks
-40
broadly across the Danish Government -45
curve

Bps
-50

-55

ASW roll from DGB27 to DGB25 -60

-65
DGB27 is now attractive priced vs
-70
DGB25 around 6bps (True ASW)/9bps Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17
(MM swap). DGB 0.25 11/18 (ASW) DGB 3 11/21 (ASW) DGB 1.75 11/25 (ASW) DGB 0.5 11/27 (ASW) DGB 4.5 11/39 (ASW)

12
Following the new status as switch 11
10
auction buy-back bond the ASW-roll 9
8
between DGB25 vs DGB23 has narrowed 7
from 9bps to 4bps (True ASW) during last 6
5
bps
couple of weeks. 4
3
2
1
0
-1
-2
-3
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

DGB 23 vs DGB 21 (ASW-roll) DGB 25 vs DGB 23 (ASW-roll) DGB 27 vs DGB 25 (ASW-roll)

5
Some DKK curve flattening in the long end
Swap and Gov curve have flattened in the 10Y-20Y
0.85 64
The long end Danish Gov curve and 0.80 62

swap curve have flattened during last 0.75

60
58
couple of weeks. 0.70
0.65
56
54
measured by an YTM spread

bps
pct
0.60 52
0.55 50
tightening of 6-7bps between DGB39 0.50
48

and DGB25 /DGB27 0.45

46
44
0.40
and corresponding in DKK swap 0.35 40
42

curve. Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

DGB 4.5 11/39 (ytm) vs DGB 1.75 11/25 (ytm) 22Y-10Y DKK swap curve slope(RHS)

8 64
In terms of long end Gov-ASW spread 6
4 60
structure the spread level between 10Y 2

and DGB39 has been kept almost 0

-2
56

unchanged during the last weeks

Bps

Bps
-4 52
-6
-8 48
-10
-12 44
-14
-16 40
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

DGB 4.5 11/39 (mat match sprd) vs DGB 1.75 11/25 (mat match sprd) DKK 22Y (par swap) vs DKK 10Y (par swap) (RHS)

6
Relative vs. German gov. and swap curve
10Y/20Y YTM and ASW MM structure in DGBs vs DBRs

The latest modest curve flattening in -5

-6
the long end also correspond to the -7
-8
flattening tendency in long end German -9
-10
Gov. curve -11

bps
-12
-13
-14
and also in terms of the MM ASW box -15
-16
vs German government bonds and the -17
-18
EUR swap curve slope Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

( DGB 4.5 11/39 (ytm) vs DGB 1.75 11/25 (ytm) ) - ( DBR 4 3/4 07/04/40 (ytm) vs BUND 1 08/25 (ytm) )

During last month the long end of 15 -2

Danish Gov curve has flattened less 10 -4

than the German curve, reflected in the 5 -6

widening of 5bps in the DGB39 vs

Bps

bps
0 -8

DGB25 vs DBR40/DBR25 -5 -10

-10 -12

-15 -14
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

DGB 4.5 11/39 vs DGB 1.75 11/25 (mat match sprd)

DBR 4 3/4 07/04/40 vs DBR 1 08/25 (mat match sprd)
( DGB 4.5 11/39 vs DGB 1.75 11/25 (mat match sprd) ) - ( DBR 4 3/4 07/04/40 vs DBR 1 08/25 (mat match sprd) )(RHS)

7
DGB vs German govt. bonds (XCCY ASW)
XCCY ASW pickup vs German comparables
-10
ASW-hedged EUR-investors can obtain -15
1.75'25
0.5'27

a significant ASW-pickup in DGBs vs 3M -20 0.25'18

4'17 4'19
3'21 1.5'23
4.5'39
-25

ASW vs 3M Euribor - bps

Euribor (incl. XCCY) vs German -30

comparables especially in the 2Y-5Y -35

-40
segment. -45
-50
-55
-60
DGB27 trades currently at an ASW- -65

pickup (XCCY adj.) of 14bps vs the 10Y 0 5 10

MOAD
15 20 25

DBR27 (vs. 3M Euribor) DEM GVMT DKK GVMT

40
35
DGB39 trades currently flat again in 30
terms of ASW-pickup (XCCY adj.) vs the 25
20
German DBR40 (vs. 3M Euribor)
bps
15
10
5
0
-5
-10
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Apr-17

DGB 18 (basisswapped) - DBR Jan 19 DGB 21 (basisswapped) - DBR Jan 22 DGB 23 (bassiswapped) - DBR Feb 24
DGB 25 (basisswapped) - DBR Aug 25 DGB 27 (basisswapped) - DBR Feb 27 DGB 39 (basisswapped) - DBR Jul 40

8
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