Extendible Danish and Dutch bonds price flat to bullets

By Bill Thornhill
21 Aug 2014

Extension risk is no longer a factor in the pricing of covered bonds. Deals auctioned this week in Denmark priced flat to existing bullet maturity deals, while last week ING received regulatory approval for a new soft bullet covered bond programme that issues bonds with extension risk. ING expects to sell these at the same level as its existing hard bullet deals.

The markets are awash with central bank liquidity and covered bond supply is contracting. The twin forces of monetary expansion and reduced supply have inevitably led to a compression of the credit curve, such that riskier bonds that can be extended beyond the maturity date are now pricing ...

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