In Denmark, where institutional investors have been living with negative interest rates longer than anyone else, the authorities just took a big step.
Danish pension funds, the world's best managed along with their Dutch peers, will finally get a 30-year government bond. When it starts trading next year, funds managing a total of $680 billion in assets will get the missing link they've long needed: a long-term, AAA-rated asset at a positive yield. That's quite a novelty these days.
The new bond will give the industry a "crucial point on the curve," said Christian Lage, CEO of PFA Asset Management, which is a unit inside Denmark's biggest commercial pension fund in Copenhagen.
"We're following it closely," he said in an interview. "Not only with regards to what extent we want to invest in it, but also how it's being priced. It has an impact on a lot of different things when we price long-term exposures."
Denmark's central bank first cut its benchmark rate below zero in mid-2012. Almost eight years later, the country has had negative rates longer than any other place on Earth. The distortions wrought by a policy intended to keep the krone fixed to the euro are particularly pronounced in the pension industry.
The art of generating long-term, stable returns so Danes can retire comfortably has become increasingly difficult. Pretty much everything safe generates a negative yield. Assets that generate positive yields tend to come with a good deal more risk.
The Danish debt office, which is a unit inside the central bank, hasn't issued a 30-year bond since 2008. That's forced pension funds to extrapolate a key anchor point in the interest rate curve that helps them determine the value of both assets and liabilities.
Not having a real number at the 30-year point was problematic. The calculations used could muddy price-setting, particularly given the uncertainty of how and when central banks might extricate themselves from negative rates.
Mr. Lage says that "what is a bit hard for the industry is that, if the interest rate curve — the govvie curve — ends at a 20-year point, what is the fair price for a 30-year asset?"