Bid-to-covers on one year ARM bonds being auctioned by Nykredit Realkredit and Realkredit Danmark today (Tuesday) were described as “very low” and RD’s spread was wider than yesterday, with an analyst attributing the move to levels having been overly aggressive yesterday on the back of lower than expected supply.

Nordea Kredit and Realkredit Danmark (RD) kicked off the auction season yesterday (Monday), mainly selling one year bonds to refinance adjustable rate mortgages (ARMs). Nordea sold Dkr4bn (Eu537m) of the one year bonds yesterday with a bid-to-cover of 2.975, while Realkredit Danmark (RD) sold Dkr7.18bn of one year ARM bonds with a bid-to-cover of 2.11 times.

However, according to a covered bond analyst in Copenhagen, today’s bid-to-covers were lower and RD’s spread wider. He said that RD’s one year bonds had widened from around 14bp over Cita yesterday to 17.2bp over today, with the bid-to-cover down to around 1.6 and Nykredit Realkredit, which began its sales of one year ARM bonds today, achieving a similar level. Nordea’s bid-to-cover was down to 2.2 and its spread almost unchanged.

The analyst said that a lower than expected amount of bonds being auctioned – down from a forecast Dkr260bn to Dkr192bn, according to his figures – had led to expectations that prices would become very expensive and prompted yesterday’s aggressive levels, but then demand had been lower than expected, resulting in today’s widening.

“If you look at the current levels they are extremely aggressive, and that means that if you are, for instance, a hedge fund, they are difficult to buy because the repo compared to the yield is very limited, so you will get a low pick-up in buying these,” he said. “There has been some uncertainty whether they would be here or not – well we have seen that they are not buying the short dated bonds, so you have one investor segment where these bonds are no longer very attractive.”

However, he said that the 3bp widening was nothing dramatic – “a little bump” – and forecast that although spreads might yet widen further prices should look increasing interesting from an international perspective and attract foreign accounts. And he noted that there are still lots of investors who need to buy the Danish bonds while the amount available continues to fall.

Another analyst played down the developments, noting that the only change had been in RD’s spread, although he acknowledged that the bid-to-covers were low.

“Is that a sign that the rest will be at wider spreads and with low bid-to-covers?” he asked. “I’m not so sure. It is pretty common that we see spreads change a couple of basis points from day to day in the auctions.”

He also noted that DLR Kredit, which began its auctions today, had achieved the same spreads as RD, continuing the trend of the pricing of smaller Danish institutions converging with those of their larger peers.

Nordea Kredit is selling Dkr29.66bn and Eu900m in total, and its sales run until Friday, while RD is also auctioning throughout this week to raise Dkr58.6bn and Eu1.457bn.

Nykredit Realkredit began its sales yesterday with floaters and capped floaters, and having now starting its ARMs auctions is raising Dkr74.2bn with sales through to Wednesday of next week (26 November).

DLR Kredit is holding Dkr20.2bn and Eu840m of daily auctions until next Tuesday (25 November), and will then hold a single day of sales on 3 December for Dkr590m and Eu15m.

BRFkredit will begin its sales tomorrow (Wednesday) and continue through to Wednesday of next week, selling approximately Dkr44.5bn of bonds, including ARMs bonds and its RTL F bonds.