Longer dated covered bonds have been in highest demand in Denmark as the March auction season entered its tenth day today (Friday), with DLR having concluded its auctions, Realkredit Danmark ready to start on Monday, and the country’s own LTRO approaching.

Lars Mossing Madsen, chief dealer, first vice president, Nykredit – which is selling the largest amount of bonds – said three year bonds have continued to perform better, starting at minus 4bp-5bp against swaps in the first auctions and moving to minus 11bp against swaps by yesterday (Thursday).

“The three year point of the curve is very liquid,” he told The Covered Bond Report ahead of today’ sales. “It seems liquidity in the system is very good.

“On Friday we have the two year bond auction, and I expect that should go as well as the three year.”

Jacob Skinhøj, chief analyst at Nordea Markets, said the three year bond is well bid in general in Denmark. He said this was because of a large redemption of more than Dkr100bn to be reinvested in Danish covered bonds by 1 April, plenty of liquidity and more to come when the Danish central bank introduces its three year longer term refinancing operation (LTRO), and mortgage backed bonds in Denmark now being cheaper compared to government bonds and other covered bonds following the swap spread having widened.

Jens Peter Sorensen, chief analyst at Danske Bank, Realkredit Danmark’s parent, said he expected Realkredit Danmark’s auctions to go particularly well in the three and five year bonds because of the LTRO, which will happen on 30 March.

Realkredit Danmark is entering the auctions on Monday as it begins to sell Dkr43.24bn (Eu5.82bn) in Danish kroner and Eu465m in euros. Dkr2.135bn in five year bonds will be sold, as well as Dkr1.9bn in three years and Dkr650bn in two years.

“I think these will go very decently,” said Sorensen. “Investors can get money from the LTRO on 30 March and put it into the covered bonds.

“In euro-land everything of three years and under has been vacuumed out of the market, so I think the same thing will happen in Denmark.”

Sorensen added that DLR Kredit auctions wrapped up yesterday had gone well.

“There has been no real impact of that threat from Moody’s,” he said. “It was almost extinguished.”

DLR Kredit was said by many Danish market participants to be the most likely to feel the strain of Moody’s latest rating actions on Danish issuers last month.

According to Nordea’s Skinhøj, DLR Kredit averaged a spread of 48bp over mid-swaps.

“I think it went quite well for DLR Kredit if you take into consideration that they were on review for downgrade by Moody’s,” he said.

Henrik Højby, group treasurer at DLR Kredit, also told The CBR the auction went as expected.

He said the bid to cover was higher than last year, but said the difference was not noteworthy. The euro bonds were sold at a bid to cover of 2.15 on their first day and 2.67 on the second, while the bid to cover on the krone bonds ranged from 1.63 to as high as 2.67, with this peak being reached in the two year bracket.

“If you look at the predictions ahead of the auctions,” said Højby, “we are more or less in line with expectations.”

Højby added that he did not believe Moody’s rating action had any impact.