Denmark is wrapping up its covered bond auction season today (Wednesday) as Nykredit sells the last of its Dkr136bn (Eu18.3bn) of bonds. Market participants said the auctions were characterised by continually tightening spreads and strong investor participation in euro issuance.

Nykredit group, comprising Nykredit Realkredit and Totalkredit, was selling its one year adjustable rate mortgages (ARMs) at 45bp over mid-swaps yesterday (Tuesday), compared with 51bp over at the beginning of the auction.

“We are extremely satisfied with the results of these auctions, and all of the positive support,” Nykredit first vice president Lars Mossing Madsen told The Covered Bond Report. “A couple of things have helped support the level over the past couple weeks, including a rates cut, especially in Denmark, and a confirmation of the Standard & Poor’s AAA rating of [Nykredit’s] covered bond programme.”

Lars Mossing Madsen

Market participants said there has been a high degree of interest in the December auctions this year, leading to a historically low spread and historically high demand in euros.

Henrik Højby, treasurer at DLR Kredit, also said there had been a high bid to cover this auction season. DLR Kredit sold Dkr34bn at 61bp over swaps in Danish krone denominated bonds and Eu3.03bn (Dkr25bn) at 65bp over.

The issuer had a bid to cover of between 1.3 and 2.6 on its Danish krone denominated bonds this year whereas last year it had between 1.4 and 1.5. On the euro denominated bonds it offered, the bid to cover of 2.2 to 3 was double last year’s range of between 1 and 1.2.

“We had feared there would not be that many investors in the euro,” said Højby, “so we were really pleasantly surprised.

“I guess the increase in foreign investors is due to the problems in the euro.”

Jacob Skinhøj, chief analyst at Nordea Markets, had expected the spread on euro denominated ARMs to continue tightening throughout the auction.

“The spread tightened very significantly – almost 25bp in spread performance” said Skinhøj. “It might be due to the safe haven bid.”

The average spread on Nordea’s bonds was 38bp over swaps, about 10bp more expensive than Nykredit. Bid to covers on Nordea’s bonds varied from 3 to 4.

Skinhøj noted that last year’s auctions had started tighter and then traded wider as the auctions moved forward.

“It’s the opposite of this year, showing that both domestic and foreign investors still consider the credit quality of Danish covered bonds to be very high” he said.

Realkredit Danmark sold bonds at a bid to cover that ranged from 1.05 to 4.44.