Nykredit reels in spread for Skr5.5bn, ARMs softer

Nykredit Realkredit sold its tightest syndicated Swedish krona covered bond today (Thursday), a Skr5.5bn (Eu614m, Dkr4.58bn) one year issue, after on Monday kicking off the latest round of auctions for refinancing of ARM bonds.

The Danish mortgage bank’s Sweden-targeted covered bond deal is being priced at 8bp over mid-swaps, the tight end of guidance of the 10bp over area. Leads Danske, Nordea and Nykredit Markets collected more than Skr20bn of orders for the Skr5.5bn April 2015 issue.

“It went extremely well,” said Lars Mossing Madsen, chief dealer at Nykredit Realkredit. “We were able to tighten the spread by 10bp since our last issue, but the bid-to-cover was more or less the same.”

Nykredit in September sold Skr10.3bn of one year SDOs at 18bp over on the back of a total order book of Skr56bn. It began syndicating its Swedish krona issuance in 2012 in a move designed to bring its sales closer to the model used by Swedish issuers in the domestic market.

The SDO was issued out of Nykredit’s Capital Centre H, backed by a cover pool including Swedish krona denominated mortgages. The transaction comes after Nykredit on Monday started the latest round of auctions held by Denmark’s mortgage banks for the refinancing of adjustable rate mortgage (ARM) bonds.

Lars Mossing Madsen, Nykredit Realkredit

It has so far auctioned Dkr28.6bn (Eu3.83bn) of Danish krone denominated one year bonds, of which it intends to offer some Dkr72.098bn in total for the bulk of its issuance in the April refinancing auctions.

Bid-to-cover ratios started at 2.06 on Monday on the one year bonds and increased progressively since then to reach 3.25 today.

However, Geert Ditlev Kunde, chief analyst at Nykredit Markets, said that the auctions are so far somewhat softer than those held in November.

“Spreads are not as tight and yields are a bit higher,” he said. “Demand isn’t as strong as three months ago.”

Nykredit’s Madsen also said that demand is not as strong as in the end-of-year refinancing auctions and spreads are wider, although only 2bp-4bp wider compared with market levels preceding the auctions.

One year ARM bonds were auctioned at around 6.5bp over Cita in the November auctions versus around 14bp over in the latest round of auctions, he said, with some widening already evident in the issuer’s tap sales in between the auction periods.

Longer dated bonds have been tightening in recent weeks, however, noted Madsen. Nykredit will next week begin auctioning three year and five year ARM bonds.

Borrowers are still showing a preference for one year ARM bonds, he added.

“There hasn’t been a big shift from one years to longer dated bonds,” he said.

Realkredit Danmark (RD) will next Monday (24 February) join Nykredit in holding auctions, with Nordea Kredit starting its auctions the day after along with BRFkredit.

Nordea intends to auction Dkr13.5bn of Danish krone denominated one year ARM bonds across three days and smaller amounts of two, three, and four year bonds, plus Eu160m of euro-denominated one year ARM bonds. BRFkredit expects to sell Dkr4.2bn of one year bonds over two days.

DLR Kredit will hold auctions in March and is expecting to offer Dkr9.9bn of Danish krone denominated one year bonds, Dkr400m-plus of two to five year bonds, and Eu680m of one year euro denominated bonds.

RD will be the second biggest seller of bonds during the auctions after Nykredit. It plans to offer Dkr36.1bn of one year Danish krone denominated bonds, Dkr12.5bn of three year bonds and much smaller amounts of two and five year bonds.

Danske Bank analysts earlier this month noted that over the course of weekly updates on RD’s expected auction volumes a clear trend was emerging of more and more borrowers swapping ARM loans for alternatives.

Hella Gebhardt Rønnebæk, chief analyst at Realkredit Danmark, said that borrowers are continuing to shift from one year bonds to longer dated ARM bonds or into FlexKort, the new Cita-based loan RD launched in September, or Cibor-linked adjustable rate mortgages.

She said that 28% of borrowers shifted from one year bonds to longer term bonds.

The issuer has shortened its auction period by one week because the amount of bonds to be refinanced is lower than it initially expected, according to Rønnebæk.