DLR, Nykredit struck by ‘serious’ bidding across ARMs auctions

DLR Kredit and Nykredit Realkredit wrapped up November auctions for the refinancing of their ARM bonds yesterday (Wednesday), with officials at both institutions highlighting the high quality of bidding.

DLR Kredit offered Dkr24bn of one year ARM bonds and Nykredit Dkr47bn, in addition to smaller amounts in longer maturities plus euro denominated supply.

BRFkredit, Nordea Kredit and Realkredit Danmark finish their refinancing sales tomorrow (Friday).

Pernille Lohmann, investor relations manager at DLR Kredit, said that the one year bonds were sold at competitive levels.

“The pricing was very good,” she told Nordic FIs & Covered. “The spreads versus our peers is very low and interest rates are at an all-time low, too.”

The yield on the DLR Danish krone one year ARMs was around 0.18% on average, she said, with the spread to Nykredit bonds on average 3bp across the one, three and five year bonds.

This latest refinancing round differed from previous auctions in that the bids tended to be more serious, according to Lohmann.

“Demand was not as high as for the other institutions if you look at the bid-to-cover, but the bids were very sharp,” she said. “Not many were out of the money so it seemed like the market knew where the bonds should be trading.”

Overall the auctions were “very satisfactory”, said Lohmann, with excess demand the main driving factor. That the bonds auctioned this November will not come under a Danish government plan for forced extension of ARMs probably also played a role, she added, echoing comments made by other market participants.

Nykredit’s auctions went “extremely well”, said Lars Mossing Madsen, chief dealer at the issuer.

“The levels tightened during the auction, including on the three and five years, and they are at the tightest levels since Lehman,” he said. “They were definitely a success for us.”

The spread versus Cita on the one year ARM bonds was around 6.5bp on average, compared with levels of 10bp-15bp before the auctions, according to Madsen.

He noted that although bid-to-cover ratios declined over the course of the auction, which is the usual pattern, Cita levels were stable to somewhat tighter.

“The quality of the bidding was really excellent,” he said.

DLR Kredit will also be auctioning a small amount of ARM bonds in December in relation to a residual number of mortgages where the borrowers did not approve a request for the refinancing month to be changed from December to November in the loan documentation.

“We received acceptance from more than 95% of borrowers, but a small number did not get back to us so we will be handling the residual auctions ourselves on Tuesday,” said Lohmann.