Realkredit Danmark is the only Danish mortgage bank still auctioning bonds in the country’s latest ARMs refinancing round, and yesterday (Monday) it began selling longer dated bonds on top of one year supply, with spreads tightening in a reversal of last week’s trend.

BRFkredit, DLR Kredit, Nordea Kredit, and Nykredit Realkredit have completed their refinancing auctions, which Danske Bank analysts said means that the halfway point has been passed.

“The auctions have generally caused spreads to widen after a period of price stability in the opening auction days with Nykredit and Nordea,” they said.

Nykredit is the biggest issuer at the auctions and on Friday wrapped up its sales of one year ARM bonds with a Dkr8.4bn (Eu1.13bn) offering. The bonds came at 25bp over Cita, with the bid-to-cover at 2.06.

Lars Mossing Madsen, chief dealer at Nykredit Realkredit, said that yields for mortgage borrowers are only marginally higher than those resulting from the December auctions despite spreads widening during the course of the issuer’s February/March auctions.

“It’s normal to see a bit of spread widening during the auctions although this wasn’t so much the case in the December auctions,” he said. “This time we started on historically low spread levels, and they widened a bit.”

One reason for this is the large size of Nykredit’s auctions, he said, which comprised a one year ARM bond offering of Dkr77bn. That compares with around Dkr63bn combined for the other mortgage banks.

The most positive outcome of the auctions, according to Madsen, is the broad interest shown in the issuer’s mortgage bonds (realkreditobligationer, ROs), which it issues out of capital centres G as part of a two tier lending model.

“Since June 2012 we extended lending under this model to private borrowers and the take-up has been increasing,” he said. “There was huge interest in these bonds in the auctions, and the spreads tightened, in Danish krone and euros.

“The auctions have confirmed that investors accept the product.”

DLR Kredit held its last of three auctions of one year ARM bonds on Friday, offering Dkr2.7bn, with the spread relatively stable, at 26.5bp over Cita, and the bid-to-cover standing at 2.65.

Realkredit Danmark (RD) is the only Danish mortgage bank left holding auctions, and yesterday it commenced sales of three and five year ARM bonds in addition to further one year bond auctions.

It sold one year Danish krone bonds at 23.5bp over Cita yesterday, in line with levels of the preceding couple of auction days, with RD one year euro bonds tightening some 3bp compared with Nykredit’s auctions on Friday.

Spreads on RD’s three year and five year bonds were 2bp tighter versus Danish krone three month swaps than Nykredit spreads from Friday. The bid-to-cover on the three year bonds was 3.58 yesterday and 3.33, respectively, today (Tuesday), and on the five year bonds 2.17 and 2.44.

Danske Bank analysts had flagged the possibility of further spread widening in three and five years as a result of ongoing auctions by Realkredit Danmark, but Jan Weber Østergaard, senior analyst at Danske Bank (RD’s parent), said that a widening trend in evidence last week was broken in both maturities yesterday.

“This could be due to investors thinking that the new, wider levels are attractive,” he said, “and investors may have had their fill of Nykredit bonds but have more room to invest in Realkredit Danmark bonds.”

According to Danske Bank analysts, three year bonds in particular cheapened during the auctions, losing ground against swaps after an extended period of performance and also widening versus govvies, albeit to a lesser extent.

“Since the end of February, the three month asset swap spread has widened from around 6bp-7bp to almost 14bp and prices are now on a par with those seen at the November/December auctions last year when the auction volume was around double that of the current auctions,” they said.

“Five year non-callable [interest-reset] bullet prices versus swaps were relatively stable ahead of the auctions but they have lost around 5bp to swaps in recent auction days.”