Increases in long-term interest rates such as in 2021 entail a jump in the duration of Danish long-term mortgage bonds via an embedded prepayment option. The jump in duration may lower the demand for duration and thus longterm bonds. This may lead to selfreinforcing effects. Jumps in duration in...

This Memo investigates the bond portfolio reaction of key Danish institutional investors to duration jumps in callable mortgage bonds. It shows that the investors remain net buyers of Danish mortgage bonds during periods of jumps. In particular, they buy more than they do on average, supporting...