Nykredit hits historic lows, three auction seasons now evenly split

Nykredit Realkredit wrapped up two weeks of auctions today (Thursday), hitting historically low yields to pass on attractive rates to borrowers, an official at the mortgage credit institution told The Covered Bond Report, and for the first time it achieved an equal distribution of volumes across three auction periods in a year.

Nykredit offered some Dkr110bn (Eu14.8bn) across an 11 day auction period from 22 August to today, according to Henrik Hjortshøj-Nielsen, executive vice president, group treasury at Nykredit.

With this latest auction season completed Nykredit has for the first time managed to hold three equal-sized auctions in a year since the issuer first moved to spread refinancings of bonds funding adjustable rate mortgages (ARMs), he said.

“Our aim was to have equal distribution between three periods,” said Hjortshøj-Nielsen, “and now we will decide when to start with refinancings in July.”

The bulk of covered bonds refinanced at Nykredit’s September auctions have been one year ARM bonds, although the issuer has also been offering three year and five year non-callable bullets.

With interest rates at historically low levels Nykredit has been selling one year bonds at a yield-to-maturity of 0.32%, three years at 0.66% and five years at 1.17%, according to Hjortshøj-Nielsen, which translates to 35bp over Cita, 2bp through swaps, and 15bp over swaps, respectively.

“That’s much tighter than in previous years,” he said.

Demand was very strong during the first six days of the auctions, added Hjortshøj-Nielsen, and was then weaker for two days before picking up again.

“Overall the change was not that big though,” he said. “The yield-to-maturity widened from 0.30% to 0.36% and then came back down again.”

He said that it is positive that rates are so low as these can be passed on directly to borrowers given the balance principle underpinning Danish mortgage bonds.

“It’s a very good story for households,” he said. “And demand in the real estate sector is picking up as people become more willing to borrow.”

Overall the housing market is stabilising, he said, as a result of which Nykredit will probably adjust its plans to issue junior covered bonds. These are sold by Danish mortgage banks to be able to comply with continuous loan-to-value requirements for cover pool assets.

“We don’t see a growing need for issuance, except for refinancing,” said Hjortshøj-Nielsen.

Nordea Kredit is holding the last of three days of auctions today, with analysts yesterday (Wednesday) noting that the spread difference between its and Nykredit’s one year bonds aligned with expectations after an “outlier” on the first day their auctions ran in parallel, on Tuesday.

One year Nykredit bonds were auctioned at 35.5bp over Cita yesterday and one year Nordea bonds at 30.1bp over, according to Anders Aalund, chief analyst at Nordea Markets. That compares with 33bp over for Nykredit one year bonds on Tuesday and 31bp over for Nordea one year supply.

A 2bp difference between the spreads on Nordea’s and Nykredit’s auctions on Tuesday was an outlier, he said.

“Our estimate was 6bp,” he said. “The 5.5bp difference from today is more in line how the spreads should be, and also with the way Nordea and Nykredit were trading before the auctions.”

Jan Weber Østergaard, senior analyst at Danske Bank, said that demand has been healthy, with bid-to-covers higher on Tuesday and Wednesday after reaching a low on Monday.

“Bid-to-covers started high and fell a bit, but spreads still tightened a bit, possibly because the investors who really wanted the bonds still bid.

“Overall spreads and bid-to-covers only changed a little.”