Nykredit Realkredit kicked off Denmark’s latest ARM bond auctions yesterday (Monday) as it heads for one of its largest refinancings, with Nordea Kredit joining in today and meeting with strong excess demand for what will be a much smaller offering of bonds.

Nykredit offered Dkr8bn (Eu1.07bn) and Eu300m of one year Danish krone and euro covered bonds, respectively, yesterday, with bids covering the Danish krone offer 3.56 times and the bid-to-cover on the euro offer standing at 3.29.

The April 2014 Danish krone bonds were sold at 20.1bp over Cita and the one year euro bonds at 29.6bp over Eonia, according to a covered bond analyst.

“Those are more or less the levels from before the auction,” she said, adding that the results were in line with expectations.

Nykredit has already this (Tuesday) morning offered Dkr2.5bn of one year traditional mortgage bonds (realkreditobligationer (ROs)) in Danish krone and euros, respectively, with  bidding on Dkr7.5bn and Eu250m of one year Danish krone and euro covered bonds (særligt dækkede obligationer (SDOs)) closing at 1300 CET.

Nordea Kredit sold Dkr4.3bn and Eu85m of one year Danish krone and euro ARM bonds today, with a bid-to-covers of 4.02 and 5.88, respectively. It will also offer two year and three year Danish krone bonds.

An analyst said that Nordea’s one year bonds came 4bp tighter than where Nykredit’s were sold yesterday, in line to 1bp tighter than expectations, with the results of Nykredit’s one year auction today still to come as The CBR was going to press..

At 4.02 the bid-to-cover on Nordea’s one year Danish krone ARM bonds was higher than on Nykredit’s offer yesterday, but the analyst said that Nykredit has a much greater volume of bonds to auction than Nordea.

Nordea will be auctioning Dkr16bn of Danish krone bonds, the majority one year ARMs (Dkr12.9bn), while Nykredit is set to contribute the greatest share of auction volumes, with an offering of Dkr109bn in Danish krone ARM bonds, roughly 58% of the total amount being issued in Danish kroner. Around Dkr88bn of Nykredit’s bonds have a one year interest reset period.

This is one of the issuer’s largest refinancings, according to Björn Sebastian Olesen, analyst at Nykredit Markets.

The targeted auction amount of Dkr109bn of bonds corresponds to a refinancing percentage of 91%, he said, as some Dkr120bn of interest reset bonds mature in early April. For its January refinancing Nykredit auctioned Dkr66bn of bonds, with the largest amounts sold within the last two years being Dkr97bn volumes sold at January and April auctions in 2012, he said.

Nykredit will this year hold its first auction of bonds for the refinancing of ARMs with a 1 July interest rate adjustment date, adding a fourth auction period to the calendar in a bid to spread refinancing risk.

Realkredit Danmark will join the April 2013 refinancing auctions on 4 March, with its auctions running until 15 March.

DLR plans to hold auctions across five days in early March. BRFkredit will participate in the forthcoming ARMs refinancing season with sales on 4-5 March with an expected amount of Dkr1.2bn, it announced last Tuesday (19 February).

The offering of Danish krone ARM bonds is set to peak around 4-7 March, said Olesen, while the offering of euro-denominated bonds is concentrated in the first auction week.

Bonds with a one year refinancing period make up the largest proportion of the Danish krone auction volumes, at 76%. However, the share of one year ARM bonds is continuing to decline, with Olesen noting that it stood at 86% and 96% at April auctions in 2012 and 2011, respectively.

And while no five year interest reset bonds are maturing at the upcoming April payment date, Dkr20bn of five year RTLs [Danish fixed rate mortgage bullets funding ARMs] are due to be auctioned over the coming weeks, amounting to 11% of total Danish krone volumes offered. That compares with shares of 4% and 1% in 2012 and 2011 April auctions, respectively, said Olesen.

“Thus there is a clear tendency that borrowers are to an increasing extent choosing to refinance further out on the RTL curve,” he said, adding that this should been seen in the context of a lending rate increase from 0.20% to 0.30% on 24 January, slightly more than a week before the deadline for borrowers changing interest reset profiles and prepaying loans.

The increase in the share of longer dated ARM bonds also takes into account a rejig by Realkredit Danmark of its original auction plan as a result of changes in borrower behaviour. This included a decision by the Ministry of Housing, Urban & Rural Affairs to refinance its existing loans, which were on a one year interest reset period, to loans with a five year interest fixing period.

As a result, the issuer intends to auction a greater volume of five year covered bonds and to hold the auctions over five trading days rather than one. It expects to auction Dkr63.65bn of Danish krone covered bonds and Eu525m of euro bonds.

Søren Gravgaard, senior dealer at Realkredit Danmark, said that this year’s March auctions will be different from the mortgage bank’s auctions at this time a year ago, but confirm a trend that was in evidence in the end-of-year auctions.

“Last year in the March auctions around 85%-90% of the auction amounts were for one year bonds,” he said, “but this time there will be less than 80% in the one years and a lot more in three and five years.”