For the first time since the financial crisis, yields at the very shortest end of Denmark’s $500 billion covered-bond market are higher than on longer-dated notes.

Mortgage banks holding quarterly refinancing auctions in Denmark are offering bonds with maturities of one to five years, and Nordea Bank Abp estimates that about 38 billion kroner ($5.7 billion) in bullet bonds will be refinanced. But investors are cooling to the shortest bonds, according to Lise Bergmann, chief analyst at the Danish mortgage unit of Nordea in Copenhagen.

The yield for borrowers on one-year bonds sold at auction by Nordea on Wednesday was minus 0.43%, the bank said. That compares with minus 0.58% for three-year bonds and minus 0.51% for five-year bonds. The yields include an issuance fee that Nordea charges borrowers. In the market for callable mortgage bonds, Jyske Bank A/S this month started offering a 10-year note at a coupon of minus 0.5%.

Monetary Easing

The last time investors preferred longer-dated bullet bonds over one-year notes was around 2006-2007, Bergmann said, just before the global economy lurched into the worst financial crisis since the Great Depression. Back then, investors ended up being proved right to shun the shortest notes, as a wave of monetary easing drove yields even lower, she said.

“We don’t know yet whether investors will be better off with three-year and five-year bonds than with one-year bonds,” Bergmann said. “It depends on what happens with rates in the coming years.”

In Denmark’s government bond market, all maturities trade at negative yields, with the 20-year bond yielding less than minus 0.4% on Thursday. The central bank of AAA-rated Denmark first cut its benchmark rate below zero in mid-2012, earlier than any other country, as it uses monetary policy to maintain the krone’s peg to the euro.

The curve at the short end of the Danish mortgage market started to flatten in October as expectations of more monetary easing took hold, said Daniel Brodsgaard, a fixed-income analyst at Danske Bank A/S.

Stripping out bank fees, which affect shorter bonds more, Brodsgaard said he doesn’t see an inversion. Still, yields are converging, with the one-year at minus 0.72%, the two-year at minus 0.71% and the three-year at minus 0.67%, according to prices provided by Danske.

The curve “had been upward sloping for many years since the expectation was that higher rates would come back,” Brodsgaard said. “But that expectation now is totally gone.”