Nordea, BRFkredit join Nykredit as ARMs sales sustain strength

Nordea Kredit wrapped up three days of refinancing auctions of adjustable rate mortgage (ARM) bonds today (Thursday), while BRFkredit and Nykredit have one day left, with “extreme” spread stability to slight tightening and curve flattening flagged as notable aspects of the sales.

Nordea Kredit held auctions from Tuesday to today, offering Dkr18.9bn (Eu2.54bn) of one year ARM bonds, Dkr570m of two years, Dkr4.38bn of threes, and Dkr600m of fives.

Nykredit Realkredit, meanwhile, started on Monday of last week (18 August) and is offering some Dkr76bn of ARMs paper, the majority of which is one year bonds. Its only sale of five year bonds will take place tomorrow, alongside another offer of one year supply.

Uffe Kalmar Hansen, senior covered bond analyst at Nordea Markets, highlighted a tightening of spreads and yields as notable aspects of the auctions.

“Nykredit’s auctions are probably the most representative, as they’ve been going on for nine days now, and the spreads there have tightened, from 16.6bp over Cita to 16.2bp today,” he said. “The spreads on Nordea one year ARM bonds were unchanged over the three auctions days in my opinion, but if you look at where they were trading on the last day before the auction season started there was a tightening.”

Nordea one year ARM bonds were auctioned at a spread of 15.2bp over Cita on Tuesday and 15.6bp over today, according to Hansen. Nordea also auctioned three year bonds over the three days, and the spread on these tightened slightly, from 7bp through three months asset swap to 8bp through, he said.

The yield on Nordea’s one year bonds increased from 0.233% on the first day to 0.243% today, while the yield to maturity on Nykredit’s fell from 0.28% on 18 August to 0.25% today, according to results published by the issuers.

Lars Mossing Madsen, chief dealer at Nykredit, said that the spread on Nykredit’s one year bonds has been “extremely stable” over the course of the auctions, on average 15bp over Cita, with expectations before the auctions having been for a spread of 16bp-18bp over.

Nykredit’s auctions started with very high bid-to-cover ratios of around 4, and although the oversubscription levels have been lower in the past few days this is a normal trend and has not affected the swap or yield levels, according to Madsen.

“The tightest level was at the beginning of this week and then when the bid-to-cover fell a bit we lost maybe 1bp, but the impact has been marginal,” he said.

The bid-to-cover on three year ARM bonds, meanwhile, shot up from 4.5 on the first day of their being auctioned, on Tuesday of last week, to 6.77 today.

“The three year auctions are done, and went very well,” said Madsen. “The yield curve flattened, and we’ve reached the tightest level between one year and three year bonds, so for borrowers it is an interesting time to consider three year ARMs.”

A BRFkredit official said that its auctions of one year ARM bonds have gone well so far, as it has refinanced at around the same level as Nordea and Nykredit, with the yield at around 0.26%, and that sales of its new RTL F bonds have also been successful.