Danish spreads, bids recover as auctions close

Spreads on Danish one year ARM bonds recovered in auctions in the first half of this week after having widened sharply last week, with bid-to-cover levels also improving, as Nykredit and BRFkredit finished their sales, while DLR Kredit only has one day left.

Nykredit Realkredit on Tuesday held the last of Dkr26bn (Eu3.5bn) of one year sales in Danish kroner at a spread of Cita plus 17bp – wider than the 14bp level at its first auction on Tuesday of last week (18 November), but tighter than a wide of 21bp over.

The widest level hit last week was on Realkredit Danmark’s one years, which were on Wednesday of last week auctioned at 24bp over, 10bp wider than where they had been sold two days earlier. However, the recovery began on Thursday of last week, with RD’s spreads recovering to 22bp over, while bid-to-covers rose from lows of 1.5-1.6 times on RD and Nykredit auctions on the Tuesday, with the latter achieving 3.96 last Friday and 3.54 this Monday.

“After we had this correction in the pricing against swaps, increasing interest came in over the last few days,” said Lars Mossing Madsen, chief dealer at Nykredit. “We saw spreads tightening – not to the extent of before the auctions, but we recovered about half of the widening.

“In the last couple of years we have seen better and better auctions with tighter and tighter levels,” he added. “The takeaway from this is that it can go the other way.”

Nykredit raised a total of Dkr74.2bn equivalent from Monday of last week to this Wednesday in Danish kroner and euros across one, three and five year ARM bonds and other instruments.

DLR Kredit completed the bulk of its sales on Tuesday, having sold Dkr26.5bn of bonds – it will hold a further small sale next Wednesday of Dkr700m.

Pernille Lohmann, investor relations manager at DLR Kredit, said that the smaller issuer is typically happy if it achieves bid-to-covers of around 2 times, and it was able to achieve this on most of its sales in spite of the volatility, and its spread levels measured against the other issuers generally came out as expected.

“I understand that it got too expensive for investors and that we had to find a new level,” she said. “It is not a question of whether investors are there or not.”

Lohmann said that the auctions have become increasingly complicated for market participants given the increasing number and variety of auctions, with as many as 13 on one day.

Like other issuers, DLR Kredit has been working to get borrowers to take out different products to one year ARMs, and according to Lohmann 60% of the one year ARMs up for refinancing in the latest sales have been moved into other products, including three and five year ARMs, but also other products, meaning that its volumes were lower than previously.