Nykredit to start auctions end-Feb, Realkredit Danmark rejigs fives

Nykredit Realkredit will kick off Denmark’s next round of ARM refinancing auctions on 25 February, with Nordea Kredit following suit a day later and Realkredit Danmark starting its auctions on 4 March, according to preliminary information recently announced by the banks.

Nordea had not yet published auction amounts at the time of writing, intending to do announce final volumes and a schedule next week. Its auctions will run from 26-28 February.

Nykredit has said that it expects to sell bonds totalling Dkr130bn (Eu17.43bn) in the period from 25 February to 8 March. The auctions are for the refinancing of adjustable rate mortgages (ARMs) sold by Nykredit and Totalkredit.

The vast majority (88%) of the Dkr130bn is expected to be in Danish krone fixed mortgage bullets and the balance in euro denominated bonds of the same format. The main part of the total auction amount will consist of one year covered bonds (særligt dækkede obligationer (SDOs)), said Nykredit.

Realkredit Danmark, meanwhile, has announced changes to its original auction plan as a result of changes in borrower behaviour, including a decision by the Ministry of Housing, Urban & Rural Affairs to refinance its existing loans, which were on a one year interest reset period, to loans with a five year interest fixing period.

As a result, the issuer intends to auction a greater volume of five year covered bonds — around Dkr9.3bn rather than Dkr3.5bn — and to hold the auctions over five trading days rather than one. The volume of one year bonds is expected to decrease by around Dkr6.3bn.

Taking these changes into account, on a preliminary basis Realkredit Danmark is expecting to auction Dkr67.1bn of Danish krone covered bonds and Eu600m of euro bonds. The bulk of the Danish krone and all the euro bonds are for the refinancing of one year bonds.

Søren Gravgaard, senior dealer at Realkredit Danmark, said that this year’s March auctions will be different from the mortgage bank’s auctions at this time a year ago, but confirm a trend that was in evidence in the end-of-year auctions.

“Last year in the March auctions around 85%-90% of the auction amounts were for one year bonds,” he said, “but this time there will be less than 80% in the one years and a lot more in three and five years.”

Realkredit Danmark’s auctions will run from 4-15 March. DLR Kredit has not yet decided on exact dates for its auctions, but plans to hold these in early March.

Jacob Skinhøj, head of covered bond research at Nordea, noted that the Danish central bank increased interest rates last week and that although spreads on one year ARM bonds are so far unchanged, the central bank’s interest rate hike should leave room for spread tightening, with 2% April 2014 bonds trading at around 21bp over Cita.

He said that Nordea analysts expect almost Dkr200bn of one year bonds to be sold over the course of the upcoming auctions. Final amounts may differ from those recently announced by the mortgage banks as borrowers still have time to change their refinancing profiles, for example by switching to loans with longer fixed interest periods.