Thursday, February 5, 2015

Has Danish pension fund ATP lost their minds?

Bloomberg reporting today that Denmark's largest pension fund is not at all worried about the EURDKK peg breaking. Sigh, where to begin?

From the article:
“We have full confidence in the central bank’s ability to maintain the peg,” Carsten Stendevad, chief executive officer at ATP, said in an interview in Copenhagen. “The central bank has ample ammunition and we’re very comfortable with the situation.”
I suspect that what Stendevad says and believes are two entirely different things. With the Danish central bank lowering deposit rates again today down to -0.75% it shows that the peg is already under attack. And of course why wouldn't it be? This is a great trade and with minimal negative carry to put on.

In our opinion the central bank has two options right now; 1) drop the peg or 2) take rates drastically more negative as in double digit negative. If they think that 25bps adjustments and attempting flatten the yield curve by 
The fund, which oversees about $110 billion in assets, says it makes no financial sense to bet against Denmark’s currency regime, which has existed for three decades, has the full support of parliament and is backed by the European Central Bank.
Oh but it does make financial sense to bet against Denmark's currency regime! History proves this over and over again and the SNB's recent actions with EURCHF should have made these dangers quite evident to all central bankers and those that believe them.

I just can't get enough of this guys' quotes:
“The current situation in the market has not changed our firm conviction in the peg. The percentage of our assets in Danish kroner is lower today than at the end of the year and it was lower at the end of the year than it was a year ago,” Stendevad said. “I think that shows our full confidence and conviction that the peg is as safe as ever.”
My final comment - the peg is NOT "as safe as ever". Stay tuned.

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