The latest Danish adjustable rate mortgage (ARM) bond refinancings proceeded smoothly last week, despite unusually concentrated supply mid-week and the postponement of some Nykredit auctions, and demand remained strong throughout, with Nykredit highlighting that its long dated capped floaters were particularly sought after.

The Danish mortgage credit institutions concluded sales of non-callables last Friday, while the last of the floaters will be auctioned next week.

A total of Dkr99.6bn (Eu13.4bn) equivalent of non-callable bonds were auctioned by the Danish mortgage credit institutions during the current refinancing season – which began on 16 November – including Dkr65.8bn, Dkr17.7bn and Dkr11.8bn equivalent of one, three and five year bonds, respectively, according to figures from analysts at Danske Bank. Nykredit, Realkredit Danmark and DLR Kredit have scheduled sales of some Dkr21bn equivalent of floaters.

“The auctions continued well, with good demand for all bonds,” said Lars Mossing Madsen, chief dealer at Nykredit. “The classic bonds were sold more or less at the tight levels we saw at the last auctions, in terms of yields, and there was especially strong demand for long end floaters.”

Supply was particularly heavy on Tuesday and Wednesday of last week, when all the mortgage credit institutions were in the market, offering a total of around Dkr25bn and Dkr30bn of non-callables, respectively – including rescheduled Nykredit auctions, which were postponed on Monday of last week due to technical issues. Market participants noted that the auctions are typically more spread out, and said the weight of supply would be an interesting test of the market – which up to then had comfortably digested the week’s earlier sales.

It was a test the market passed, as bid-to-covers remained high throughout the mid-week supply bulge, with some three and five year ARMs more than five times covered, and only limited spread widening was seen on Wednesday, the most sizeable moves being 3bp widening in the five year segment.

“Overall, there has been very strong demand, and no major surprises in any of the auctions,” said Anders Lund Hansen, director of group mortgage funding at BRFkredit. “The market remains influenced by negative net supply.”

The refinancing rate of all recent auctions has typically been low, and in the latest sales’ net supply was estimated to be negative Dkr69bn. Meanwhile, demand remained high throughout the sales, as had been expected, including strong demand from foreign investors.

Nykredit’s Madsen noted that the postponement of some of its auctions had no discernible impact on the pricing of the bonds when they were brought to market on Wednesday, with the rescheduled one years sold at the same level as other one years earlier in the auctions.

He highlighted that demand was especially high for Nykredit’s longer dated capped floaters. The issuer auctioned two capped floaters, a Dkr12bn offering that attracted some Dkr57bn of demand, and another Dkr1.1.bn that attracted over Dkr5bn of demand.

“These went really well,” he said. “One reason is that the capped floaters we sold over the last two years have been performing fantastically.

“Another reason is they fit well into many books. You’ve got a six month Libor plus spread, so they have some positive carry.”