The Swedish FSA is implementing a partial waiver from the application of CRR covered bond requirements that could cause concentration risk after the European Banking Authority agreed that a similar move in Denmark is justified.
A drop in confidence in Danish covered bonds was one of four downside risks highlighted by the International Monetary Fund (IMF) upon the conclusion of its latest report on the Danish economy last week, although the supranational body acknowledged progress being made by the authorities in tackling the area.
Moody’s upgraded Danske Bank from Baa1 to A3 last week, citing as the main driver continued improvement in the Danish bank’s profitability, with reduced refinancing risk in its mortgage credit operations another factor.
Spreads on Danish one year ARM bonds recovered in auctions in the first half of this week after having widened sharply last week, with bid-to-cover levels also improving, as Nykredit and BRFkredit finished their sales, while DLR Kredit only has one day left.
Danske Bank sold a Eu1bn four year senior unsecured floating rate note at Euribor plus 38bp on Wednesday of last week (12 November) to complete its funding target for 2014.
Spreads on Danish one year ARM bonds widened by up to 10bp over the first three days of the latest refinancing auction season this week and bid-to-cover ratios hit lows, despite a sharp fall in supply, with market participants struggling to remember such turbulent conditions and understand the moves.
Nykredit Realkredit has halved the amount of one year ARMs bonds it is selling when it kicks off the latest Danish auction season on Monday from Dkr74bn to Dkr37bn (Eu4.97bn) as its customers move towards longer dated mortgage products, and is building up euro FRNs in connection with this.
Covered bonds’ anticipated favourable treatment in the Liquidity Coverage Requirement was confirmed by the European Commission on Friday, with the highest rated covered bonds eligible for up to 70% of liquidity buffers as Level 1 assets and others in Level 2A or 2B.
The Danish FSA (Finanstilsynet) set out proposals for a “Supervisory Diamond” for Denmark’s mortgage credit institutions on Thursday of last week (11 September) that aims to reinforce the Danish industry’s systemic stability, including moves away from one year ARMs and interest-only (IO) loans.
Danske Bank priced a Eu1bn (Dkr7.45bn) short five year covered bond at 2bp through mid-swaps on Wednesday, making it the first Nordic euro benchmark covered bond to have been priced through mid-swaps since the onset of the financial crisis.