Spreads softer towards end of Danish ARMs season

Denmark’s mortgage credit institutions are nearing the end of the latest ARMs refinancing season, with a covered bond analyst suggesting that the sales did not quite go as expected.

Nykredit Realkredit was the first mortgage bank to start its auctions, also selling the most bonds, with Nordea Kredit and Realkredit holding their auctions over a shorter period the following week. BRFkredit also held tap sales last week, with DLR Kredit holding auctions this week.

Anders Aalund, chief analyst at Nordea Markets, noted that these refinancing auctions are the last to take place before new legislation is in place providing for conditional forced maturity extension of certain bonds, but that spreads widened during the auction, contrary to expectations that levels on one year ARM bonds would be stable or perform.

“Versus Cita, Nykredit spreads went from 13bp to 19bp over, for example,” he said. “The bid-to-cover was fairly low, too, lower than normal.”

Aalund noted that Realkredit Danmark spreads widened by around 2bp over the course of its auctions, but that it started its auctions the week after Nykredit and that the spread widening was in line with that on Nykredit’s bonds in the second week of its auctions.

“Nordea’s spreads were a bit more up and down,” he added. “They performed on the second day, and then widened.”

Nordea Kredit sold Dkr15.18bn and Eu160m of bonds between Tuesday and Thursday of last week (February 25-27), achieving the tightest spread of any issuer on its one year ARMs bonds, from 12.4bp to 14.5bp, and slightly higher bid-to-covers, of between 2.6x and 4.0x.

BRFkredit and Jyske Bank last week announced that they are set to merge, a move that is seen as credit positive for BRFkredit and led to its one year bonds trading 1bp tighter than Nykredit’s on the final day of two days of BRF bond sales last week, according to Aalund.

“Going forward BRF should trade tighter than Nykredit,” he said.