Nykredit ARMs opener four times covered as levels beat expectations

Aug 21st, 2014

Nykredit Realkredit got the new Danish auction season off to a flying start on Monday morning when its opening, Dkr7bn (Eu939m) sale of one year ARM bonds attracted some Dkr27.9bn of bids and achieved a level inside expectations, and the following auctions unfolded in the same vein.

Nykredit imageNykredit is selling around Dkr66bn overall of one year bonds to refinance adjustable rate mortgages (ARMs) during auctions lasting until the end of next week (29 August).

Lars Mossing Madsen, chief dealer at Nykredit, told The Covered Bond Report that that the bid-to-cover of close to 4 on Monday was particularly notable given the high volume of bonds on offer on the first day of the sales. The bid-to-cover level is the highest for one year ARMs for Nykredit on the first day of an auction series in over a year, with it having achieved 3.44 a year ago and then 3.38 in November 2013, 2.06 in February, and 3.06 in May.

“It has gone extremely well,” he said, “even better than I had expected, and I had been quite positive.”

Nykredit auctioned a further Dkr7bn of one year ARM bonds on each of the three ensuing days, with the bid-to-cover hitting 4.04 today (Thursday), after 3.96 on Tuesday and 3.84 yesterday.

“Things have continued very positively,” said Madsen. “Normally you see large interest at the beginning of the auctions but then the bid-to-cover weakens, but this time it has been extremely stable.”

The spread on the one year bonds has tightened marginally over the course of the auctions.

On Monday they were auctioned at a spread of 15.5bp over Cita, according to Madsen, whereas he and other market participants spoken to by The CBR last week had forecast a wider level. Madsen said that based on tap sales its July one year ARM bonds had been trading at 16bp over and, given that the new bonds are longer dated, he was expecting a level of 16bp-18bp over of the new sales.

“But the interest generated a tighter spread,” he said.

Today the one year bonds were auctioned at a spread of 14.5bp over, according to Madsen.

“The level was reasonably tight to begin with, and is even tighter now,” he said.

Nykredit auctioned Dkr800m of two year bonds on Monday at a yield of 0.31%. That was the only day on which Nykredit is selling the two year bonds and the auction achieved a bid-to-cover of more than 5.

It auctioned Dkr1bn of three year ARM bonds on each of Tuesday, yesterday and today, with the bid-to-covers reaching 4.5, 4.65, and then 4.81, respectively.

An analyst noted that the spread on the three year ARM bonds has been very stable, hardly budging from 6bp through three month asset swaps.

Nykredit also expects to offer Dkr1.2bn of five year ARM bonds, and has sold Dkr8.2bn and Eu300m of floating rate notes.

BRFkredit and Nordea Kredit will be holding sales next week, and DLR Kredit in the first week of September.

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