Denmark’s mortgage banks achieved better than expected yields in a fortnight of auctions that ended yesterday (Thursday), despite macroeconomic events having threatened to push rates higher.

The auctions faced high volatility because of comments from European Central Bank president Jean-Claude Trichet at the start of the month and the situation in Japan, said market participants.

“The outright yield level increased just at the start of the auction and then we have seen this risk aversion scenario after the events of Japan,” said Gustav Smidth, senior analyst at Danske Bank. “It pushed down the outright yield levels at the end of the auctions.

“Actually, there has been a lot of volatility in the outright level in all the auction days.”

Nykredit Realkredit was the most active, selling Dkr80bn in local currency and Eu1.6bn in euros over an 11 day period.

“The positive thing was that over the 11 days of the auction the average yield tightened 10bp to swap and that’s definitely more than usual,” Nykredit first vice president Lars Mossing Madsen told The Covered Bond Report.

“Another thing of interest was that we saw the bid-to-cover being much higher than normal during the auction,” he added.

The average bid-to-cover was four times, compared with 2.6 in December and 3.4 in October.

It is difficult to say why the bid-to-cover was much better than it was in December”, said Madsen. “One reason, of course, is that in December the amount the mortgage institutions where issuing still is much higher than in March.”

Realkredit Danmark, a subsidiary of Danske Bank, had planned to issue Dkr26.6bn and Eu408m; it came close to those targets with Dkr26.4bn and Eu410m. The bank edged up to a bid-to-cover of 3.2 this month, compared with a rate of 2 in December.

Smidth at Danske Bank said spreads generally tightened at the auction, in euros and Danish kroner.

“At the beginning of the auction they were priced around 40bp-45bp to Eonia, the one years, and they ended up being priced around 37bp,” he said. “So, you can see there’s come decent tightening throughout the auction dates.”

Nordea Kredit had anticipated a spread of 57bp over Eonia, according to Jacob Skinhøj, chief analyst at Nordea Kredit, but was “very happy” with spread tightening during the auctions.

The bank issued Eu115m and Dkr8.205bn over two days, with an average bid-to-cover of 3 or 4, roughly on par with previous auctions.

“I think in a world such as that we have today, with the uncertainty about Japan, investors go for safe havens and these covered bonds are a safe haven and will remain a safe haven in a situation like this,” said Skinhøj.

“I think that the Danish investors and foreign investors, they think that Danish covered bonds are as good as Danish government bonds and they want to buy into safe assets.”

Daily yield (grey) and cumulative average yield (blue) over Nykredit auctions