Nordea gets record lowest yield as auctions close

BRFkredit, Nordea Kredit and Realkredit Danmark finished the latest round of sales to refinance ARM bonds last Friday (29 November), with analysts noting that spreads were the lowest since before the crisis and that Nordea achieved the lowest absolute yield ever at an auction.

BRFkredit, Nordea and Realkredit Danmark (RD) concluded their sales two days after DLR Kredit and Nykredit Realkredit finished their November auctions. DLR Kredit also held December auctions this week, but only for a small, residual amount of bonds.

Thomas Toft Brock-Jacobsen, head of Rating & IR, BRFkredit

Nordea offered Dkr35bn (Eu4.67bn) of one year Danish krone denominated one year adjustable rate mortgage (ARM) bonds at its latest auctions, and RD sold the most of any of Denmark’s mortgage credit institutions, at Dkr50bn.

Thomas Toft Brock-Jacobsen, head of rating and investor relations at BRFkredit, noted that in total in the last two weeks of November the Danish mortgage sector sold ARM bonds for around Dkr235bn, of which BRFkredit distributed approximately Dkr38bn, including some Dkr31bn of one year non-callable bullet bonds.

BRFkredit is very satisfied with its auction, he said.

“It ended with a 0.16% interest rate on F1 loans, which is not just low, but historically low,” said Brock-Jacobsen.

In 2012 the level was 5bp higher.

“The interest rate level tightened during the two weeks of our auction, on our one year and five year bonds,” added Brock-Jacobsen.

He noted that the difference between the spreads on the different issuers’ ARM bonds was very small.

Uffe Kalmar Hansen, senior covered bond analyst at Nordea Markets, said that the spreads achieved at the latest refinancing auctions were the lowest since before the crisis. The absolute yield on one year ARM bonds offered by Nordea was 0.13% across the five days of auctions, the lowest yield ever at an auction, according to Hansen.

“Everyone seems to be extremely satisfied,” he added.

The decision by some borrowers to take out new Cita-based loan products as opposed to continuing with bullet ARM bonds had a positive impact on the auctions by reducing the supply of bonds while demand remained strong, added Hansen.

At RD’s auctions the average spread over Cita on one year ARMs was 6.2bp, according to Jan Østergaard, senior analyst at Danske Bank Markets. The auctions started at a spread of around 8bp over Cita before tightening to around 5bp over and then widening to 6.8bp in the last two days of the auctions, he said.

“It was very tight compared with previous auctions and there was very high demand,” he added.

The levels are considerably tighter — by some 10bp — than those at which the bonds had been trading in the market before the auctions, according to Østergaard.

“We have seen these levels against swaps before, but not against Cita,” he said. “The levels were also very tight versus government bonds.”

The spread on one year ARMs versus govvies was around 19bp over.