Growth in the G3 countries gains momentum with the US in the lead, but the strength of the recovery is still uncertain. However, this does not change the fact that central banks are preparing markets for taking the first steps towards normalisation of official interest rates in the second half of the year - first in the US and then in Euroland. Also in Denmark the rate of growth is on the rise, but the growth potential in the Danish economy is very limited. With a recovery based on the lowest rates of unemployment in 25 years and a receding labour supply, the risk of rising wage inflation is constantly present. On top comes that the starting point is wage rises which are relatively high compared with other countries and which have provided households with a significant increase in real wages.
Return in the Danish bond market
Since the beginning of the year, the common market theme has been weakly rising yields - and not surprisingly the return on mortgage bonds outperformed that of government bonds. This trend is expected to draw to a close soon, but will, however, continue in the near term driven by low issuance of callable bonds and a rising yield level, John Madsen concludes.
Focus no. 19 can be accessed by clicking here.
