Reduced risk with negative coupon
Interest rates are historically low, which presents a challenge for bond issuers required to handle negative interest rates. VP SECURITIES is currently adding the final touches to a fully automated process to handle negative coupon rates.
For the first time ever, the interest rate on 10-year Danish government bonds is negative and the Danish market is following in the footsteps of markets as Germany and Japan. After Brexit and falling share prices, investors are seeking more secure assets. These include Danish government and mortgage bonds.
Negative interest rates are not a new phenomenon for issuers of bonds at variable interest rates and the handling of negative interest rates constituates an operational problem all over Europe. So far these securities have typically been handled manually and case by case. This way of handling the issue has increased the resources required, and also the operational risk.
At VP SECURITIES negativ interest rates have been handled in accordance with the contingency plan drawn up in the autumn of 2012 and agreed with the market. But now, VP is ready to launch a fully automated process for negative coupon rates.
"We're definitely among the first – and perhaps the first – CSD to have a fully automated process for bonds with negative coupon rates. This means that we're helping to reduce the operational risk for issuers of bonds at variable interest rates," says Chief Commercial Officer Birger Schmidt, VP SECURITIES.
VP has developed the solution in consultation with Danish mortgage issuers and the fully-automated solution will be implemented before the end of September 2016, so that the solution is in place for the calculation of interest at the end of Q3.