Nykredit launched Denmark’s September covered bond auction season yesterday (Monday), kicking off Dkr80bn (Eu10.74bn) of sales in its first test of the market since Moody’s re-evaluated its view on Danish mortgage financing.

Nykredit, Copenhagen

Nykredit group, comprising Nykredit Realkredit and Totalkredit, is selling Dkr57bn (Eu7.65bn) in fixed rate bullet bonds and Dkr23bn (Eu3.1bn) in floating rate bonds over 10 days between 5 September and 20 September.

Nykredit is issuing covered bonds primarily out of a new capital centre, H, which was set up by the Danish group as part of a response to a Moody’s change in assessment of the refinancing risk of adjustable rate mortgage (ARM) loans.

Moody’s on Friday assigned issuance from the new capital centre a Aa1 rating, but S&P rated Capital Centre H covered bonds AAA on the same day.

“The quality of the bonds is basically the same,” Nykredit first vice president Lars Mossing Madsen told The Covered Bond Report. “The only thing that has changed is Moody’s view of Danish mortgage lending.

“As it looks right now, we’re able to issue more or less at the same levels as before, but it’s too soon to tell, really.”

Madsen said the issuer had achieved historically low yield levels for its borrowers on Nykredit group’s first day of auctions yesterday, varying from 1.22% to 1.68%.

Gustav Smidth, senior analyst at Danske Bank, also said that the recent quibble with Moody’s would not negatively affect bonds coming out of Nykredit’s Capital Centre H.

“I think in the beginning appetite could actually be higher,” he said, “because it will look cheaper and be cheaper, particularly for domestic investors.

“Our estimate is about 5bp cheaper.”

Jacob Skinhøj, chief analyst at Nordea Markets, said Moody’s rating would affect pricing.

“I think they will have a small impact on the auction,” he said, adding “not too much”.

He added that it is only Nykredit ARM covered bonds that have a Aa1 rating now, with the rest of their covered bonds still rated Aaa by Moody’s.

“They should trade wider than Nordea,” he said, “but I’m not sure that impact will be very large.”

Like Nykredit, Nordea Kredit’s issuance was subject to a revision by Moody’s of its Timely Payment Indicator from “very high” to “high”. However, the covered bonds Nordea is issuing are rated Aaa.

“It might only be a few basis points,” added Skinhøj, “and we can’t tell what is from the establishment of the new capital centre and what is from the internal line restrictions of institutional investors.”

He said Nykredit has a share of around 40% of issuance in Denmark, so some institutional investors have reached internal credit line limits.

“Some institutional investors can buy no more bonds, which can also make the spread on Nykredit go wider than the spread on Nordea,” said Skinhøj.

Nordea Kredit is expected to trade at around 20bp-25bp over swaps in this season’s auctions and Skinhøj said Nykredit is expected to trade 10bp wider.

Nordea Kredit will offer Dkr8.5bn (Eu1.14bn) and Eu140m of bonds on 8 and 9 September.

DLR Kredit will also auction Dkr5.4bn (Eu725m) in total tomorrow (7 September) and 13 September, after having only issued one day last year in September.

“We’ve spread out our auction days in December and March as well in order not to be too dependent on price levels at specific days,” said Louise Rosentoft, economist at DLR Kredit. “At the moment, as you have seen, there is more uncertainty and volatility.”

DLR Kredit was downgraded from A3 to Baa1 by Moody’s in July but its covered bonds remain Aa1.

Rosentoft said the issuer expected strong investor demand.

“We thought that there was a lot of  interest from investors last year,” she said. “This year we expect the same.”

Realkredit Danmark, which dropped Moody’s ratings of its covered bonds, is not holding auctions this month.