Focus on FRNs in run-up to Danish auctions

Danish mortgage credit institutions have announced their plans for refinancing auctions to be held later this month, with Nykredit kicking off sales on 23 May, and floating rate bonds are in focus amid a trend away from one year ARMs.

Nykredit imageDenmark’s mortgage banks have for some time been trying to move borrowers away from one year adjustable rate mortgages (ARMs) towards products with longer interest rate periods, and a market participant noted that the latest auctions are set to continue this shift.

“Everybody is trying to get people out of one years and into the longer maturities – three or five years or even longer,” he said. “This will take time, but this is why we are seeing less of the one years than in the past.

“If you look at the issuers other than Nykredit, they are selling a lot more of the floating rate notes.”

Nykredit will offer a total of Dkr21bn in auctions from 23 to 26 May. The offering will comprise Dkr12.2bn in Danish krone-denominated bullet covered bonds – the majority of which will be one year ARMs – and Dkr8.8bn in floating rate bonds.

Realkredit Danmark will hold its auctions on 24 and 25 May, selling Dkr25.7bn equivalent in total – offering only floating rate notes.

DLR Kredit also only issue floating rate notes in its auctions on 25 May, offering Dkr7.85bn.

Nordea Kredit will hold its auctions on 24 and 25 May, while BRFkredit will not hold refinancing sales this month, with its sales this year divided between February/March, September, and November/December.

“In general the market is well bid, especially for fixed coupon bullets,” said a market participant. “Spreads in fixed have stabilised and even tightened in the last couple of weeks, while the floating have been more or less unchanged.

“We could see some widening with the auctions coming up because the market is aware that billions is going to be sold, but there’s no question that there’s enough liquidity out there. The sales will be supported well.”

Nykredit Realkredit also announced a mandate this (Friday) morning for a floating rate note July 2019 covered bond, expected at the end of May, through which the issuer it expects to complete the refinancing of its Swedish krona-denominated lending in its Capital Centre H.

Danske, Nordea, Nykredit and SEB have the mandate.