Nykredit softer on high volumes as Danish ARM auctions near end

Mar 7th, 2013

Spreads on Nykredit ARM bonds widened slightly today (Thursday) after some tightening of its one year bonds yesterday broke a softening trend, while levels on Realkredit Danmark and DLR Kredit one year bonds were almost unchanged.

NykreditDLR Kredit and Nykredit Realkredit conclude their auctions tomorrow (Friday), while Realkredit Danmark (RD) has six more days of auctions to go, which include the beginning of its sales of three and five year Danish krone ARM bonds on Monday. It is also scheduled to offer Eu525m of one year euro bonds on Monday.

Nykredit is auctioning the largest amount of bonds in this refinancing round and today sold Dkr8.4bn (Eu1.23bn) of one year adjustable rate mortgage (ARM) bonds at 25.3bp over Cita, according to an analyst. The bid-to-cover was 2.47, up from 2.01 yesterday.

The issuer also sold three and five year Danish krone ARM bonds — Dkr2.4bn of each — with an analyst noting that overall the bid-to-cover ratios were in a high range.

The spread on the issuer’s one year bonds is around 1bp wider than yesterday, when the issuer’s one year bonds tightened some 0.5bp against Cita to break with a spread widening trend, and in line with levels from Tuesday, according to analysts.

Nykredit three year and five year Danish krone bonds widened 2bp and 1.5bp against Cibor today, said one, who attributed the spread moves on Nykredit’s bonds to the size of the issuer’s auction. He also speculated that slightly less foreign interest compared with the November auctions could be playing a part.

“The cross-currency swap has tightened a bit so as a euro investor buying Danish krone bonds your pick-up would be less than at the time of the November auctions,” he said.

DLR Kredit today auctioned Dkr250m and Dkr50m of three year and five year Danish krone denominated ARM bonds, respectively, as well as Eu350m of one year euro bonds. The issuer will tomorrow wrap up its auctions with a Dkr2.7bn offer of one year Danish krone bonds, its third offering of what it refers to as F1 ARM bonds.

The second F1 auction took place yesterday, and had a very good outcome, according to an official at the issuer.

“We came out with an interest rate of 0.35%, only 3bp over RD and 1.5bp over Nykredit that came after us yesterday afternoon,” she said. “The bid-to-cover of 1.7 was markedly lower than Monday, but didn’t affect pricing.”

The bid-to-cover on DLR Kredit’s F1 offering on Monday was 2.9, and the interest rate 0.34%.

According to an analyst the issuer’s F1 bonds were auctioned at a spread of 26bp over Cita yesterday, 0.5bp tighter than the pricing levels on Monday.

Realkredit Danmark sold Dkr4.2bn of one year ARM bonds today to take its total over the past four days to Dkr16.88bn. The bid-to-cover was 2.7, down from 2.96 yesterday, and the spread almost unchanged compared with yesterday, according to analysts.

“The spreads have been very stable,” said one, “in the range of 22.5bp-23.5bp.”

The one year bonds were today auctioned at 23.3bp. With Nykredit spreads having widened somewhat, the differential between the two issuers’ one year bond spreads is at 2bp, after a 1bp difference yesterday and 3bp on Tuesday.

The issuer is holding auctions all of next week — until Friday, 15 March — and is due to offer Dkr11.15bn of three year bonds and Dkr10.3bn of five year bonds in total across the five days for a daily amount of Dkr2.2bn and Dkr2bn, respectively. It will continue to auction one year bonds, with an analyst saying he expects spreads to tighten.

BRFkredit wrapped up two days of auctions on Tuesday, having sold Dkr1.2bn of one year Danish krone bonds. The spread difference to RD had been 3bp while BRFkredit one year bonds were sold at the same spread as Nykredit’s (25bp over Cita) on Tuesday.

This has not happened since around 2007, according to Jan Weber Østergaard, senior analyst at Danske Bank.

“Those are pretty tight levels, as was the case in the December auctions,” he said.


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