Spreads on Danish covered bonds being sold in the latest refinancing auctions have widened in line with the pressures afflicting the broader financial markets, according to market participants, with dynamics affecting the five year segment said to be particularly in focus.

Nykredit Realkredit kicked off approximately Dkr123bn (Eu16.5bn) of auctions on Friday. The first day comprised just one year ARMs bonds, which were sold at a yield of minus 3bp and achieved a bid-to-cover ratio of 3.17. Nykredit then added three and five year paper yesterday (Monday), when Realkredit Danmark (RD) also entered the market.

“In general spreads have been widening a bit versus secondaries in the past couple of weeks due to what has been going on in the equity and credit markets,” said Lars Mossing Madsen, chief dealer at Nykredit.

Spreads on three year paper are some 4bp-5bp wider than ahead of the auctions, he said, with five years having widened a little less, while one year paper is some 6bp wider, at around 35bp over Cita today.

However, the wider spreads have attracted greater demand, according to Madsen, who noted that, for example, the bid-to-cover on Nykredit’s five year paper had increased from 2.22 yesterday to around 4.5 today (Tuesday).

An analyst said that moves in the five year segment were particularly notable, highlighting two trends playing into these. Firstly, a general weakening in longer dated Danish bonds over the past year – since the Danish central bank acted on speculation about the krone cap – which had also been evident in the government bond market, also partly reflecting the risk-off sentiment.

And secondly, news from Nykredit last Thursday – in conjunction with an announcement of its planned listing – that loan administration margins will be increased, most significantly for short dated mortgages.

“The administration margin increase is implemented in step with the objective of the Supervisory Diamond of the Danish Financial Supervisory Authority, which aims to ensure a limited use of interest-only loans, highly interest rate sensitive loans and loans with frequent refinancing,” Nykredit said.

The analyst said that this has been perceived as giving a further push to an existing trend of supply being increasingly weighted towards longer maturities.

Nordea Kredit and BRFkredit are beginning their sales today, and DLR Kredit tomorrow (Wednesday).