Initial results for Nykredit and BRFkredit in the latest Danish adjustable rate mortgage (ARM) bond refinancings have backed up forecasts of strong demand and low yields, and an “intense” day of sales is foreseen tomorrow despite Nykredit today (Monday) suspending sales due to technical issues.

Nykredit kicked off the latest refinancing season on Thursday, when it issued Eu1.13bn of euro-denominated floaters, with bid-to-cover ratios between 2.8 and 3.2.

Lars Mossing Madsen, chief dealer at Nykredit, told The CBR that its auctions had started well.

“The results have been satisfying, and the yields we have received have been good,” he said. “The bid-to-covers were a little less than we have seen in the last couple of auctions, but I do not see any big problems there.”

Nykredit and BRFkredit were due in the market today, but Nykredit – which was offering Dkr3bn and Eu235m of one year bullets, and Dkr1.85bn of three years – suspended its auctions, citing technical issues relating to the Nasdaq auction system.

The issuer said new auction dates and times will be announced as soon as possible, and Madsen said the issuer’s auctions will continue tomorrow as scheduled.

“They have promised us that it will work tomorrow, so that is our Plan A,” he said. “If it does not, then we will find another way to execute the auctions.”

The sales of BRFkredit – which uses a Bloomberg auction system – continued unaffected, and the issuer successfully sold Dkr1.95bn of one years, at a price of 101,523 and a bid-to-cover of 4.64, and Dkr70m of nine years, at a price of 102,05 and a bid-to-cover of 8.86.

Anders Lund Hansen, director of group mortgage funding at BRFkredit, said the especially high bid-to-cover ratio for the nine years was “somewhat hollow” due to the small size of the deal, but said demand for its bonds today had nevertheless been strong, due in part to the limited volumes being offered and the lack of competing supply today.

A total of Dkr99.6bn (Eu13.4bn) equivalent of non-callable bonds will be offered by the Danish mortgage credit institutions during the current refinancing season, 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 also announced supply of some Dkr21bn equivalent of floaters.

Market participants said the technical issues that affected Nykredit’s auctions today are not expected to affect the rest of the week’s sales.

“It seems like the market has taken it calmly,” said a banker. “People know this kind of thing can happen.”

The non-callable sales are currently scheduled to continue until Friday, while the last of the floaters will be auctioned on 5 December, by DLR Kredit. Supply is scheduled to be particularly heavy tomorrow and on Wednesday, when Dkr24.83bn and Dkr23.297bn of non-callables are expected, respectively.

However, total supply is still short of expectations, resulting in negative net supply of some Dkr69bn, according to Danske analysts.

“The announced auction amounts are generally lower than expected – especially in the three year and five year segments – and average refinancing rates are between 58% and 70% for RD, Nykredit, Nordea Kredit, BRFkredit and DLR Kredit,” they said. “The Danish Transport, Housing and Construction Authority announced on 16 October that the upcoming refinancing of ARM loans in social housing for Dkr3.7bn will be shifted from a refinancing period of five years to one year.

“We estimate the low auction amount for the five year segment is in part due to this shift in ARM loans in the social housing sector. We further estimate that this remortgaging has been particularly concentrated in RD’s series, as the auction amount for RD’s five year bonds fell quite sharply from Dkr9.7bn on 30 October to Dkr6.3bn on 6 November.”

This negative net supply and anticipated high demand, including strong demand from foreign investors, are expected to keep spreads and yields close to record lows throughout the auctions.

“It is expected to be a very good and solid auction with high bid-to-covers all the way round, and low interest rates as a result,” said BRFkredit’s Hansen. “The interesting auctions will be tomorrow and the day after, simply because of the number of auctions to be executed.

“They haven’t been so concentrated in previous years, and are normally a bit more spread out. It is not expected to be a problem, but it will be a bit more intense.”