Nykredit found stronger than expected demand for three year bonds on the first day of the Danish auction season today (Wednesday). Meanwhile, Nykredit Realkredit and Bank were rated by Fitch, and BRFkredit and Jyske are extending joint funding to commercial mortgages.

Nykredit, Copenhagen

Nykredit sold Dkr7.3bn (Eu980m) and Dkr1.1bn of one and three year bonds, respectively, this morning, with bid-to-cover ratios of 3.06 times for the one year bullets and 6.10 times for the three years.

“The auctions have been fairly good,” said a Nykredit official. “We had pretty good bid-to-covers, especially in the three years.”

The one year was sold at a yield-to-maturity of 0.3% and the three years at 0.69%. The one year pricing was equivalent to Cita plus 33.3bp, according to the issuer, which was in line with expectations.

Fitch on Monday assigned A/F1 long and short term ratings, with stable outlook, to Nykredit Realkredit and its Nykredit Bank.

Nykredit terminated its contract with Moody’s on 13 April and on 30 May Moody’s withdrew its ratings of the group’s covered bonds, but maintained unsolicited ratings for Nykredit Realkredit and Nykredit Bank.

The Danish group is understood to be in dialogue with Fitch regarding a rating for its covered bonds, although this is not expected to happen until next year. The more pressing impetus for Nykredit hiring Fitch is understood to be its short term rating of Nykredit Bank, with the F1 rating of importance to its commercial paper programme.

Fitch said that Nykredit’s ratings reflect its strong Danish franchise as the leading domestic mortgage lender, good capitalisation and strong asset quality in its mortgage portfolio. They also factor in the greater risks in its banking business as well as a significant wholesale funding reliance, added Fitch, although the latter is mitigated by a large, deep and liquid domestic funding market.

“Similar to its domestic peers, Nykredit’s mortgage business is entirely funded by mortgage bonds, around one-third of which mature within one year to match the duration of the bond with the underlying mortgage,” said Fitch. “While these securities are effectively ‘pass-through’, the structure creates a significant maturity concentration each year. Fitch expects demand for these bonds to remain strong given the necessity of predominantly domestic financial institutions, insurance companies and pension funds to hold highly liquid, high quality, securities in domestic currency. This is reinforced by the relatively limited outstanding volume of Danish government bonds.

“Although not Fitch’s base case,” it added, “asset quality could be negatively affected if there was low investor demand during the bond auctions that materially increased the funding costs. These increased costs would be passed on directly to the ultimate mortgage borrower.”

Moody’s view of refinancing risk in the Danish market with regard to adjustable rate mortgages (ARMs) was central to its disagreement with Denmark’s banks.

BRFkredit and Jyske Bank announced in interim results statements yesterday (Tuesday) that they are expanding a joint funding model to commercial mortgages.

Under an agreement announced in February, Jyske and Sydbank have transferred home loans (prioritetslån) into BRFkredit’s capital centre E for funding through SDOs. On 10 July BRFkredit also entered into an agreement to finance homes loans of Arbejdernes Landesbank likewise.

With effect from 1 September, Jyske Bank will be able to provide mortgage loans for commercial properties through BRFkredit.

“The agreement will strengthen BRFkredit’s distribution in the corporate lending segment,” said BRFkredit, “while ensuring that Jyske Bank’s customers will gain access to a wider range of competitive products and options.”

Jyske said that the agreement does not affect existing co-operation with DLR Kredit and Nykredit.