Denmark

The European Banking Authority (EBA) on Monday published the final draft of its Regulatory Technical Standards (RTS) on close correspondence between the fair value of an institution's covered bonds and the fair value of its assets. The document will put an end to an accounting trick that allowed banks to make their capital position appear better than it was.

The Danish auction season kicks off this week with Nykredit’s scheduled to start on Thursday and the other Danish banks expected to follow. The auctions will be notable for offering a new type of longer dated product that should help to address rating agency concerns over asset liability mismatches and help fulfil Basel III’s Net Stable Funding Ratio.

Hard work rather than a change in terminology led to the surge in interest for Nykredit Realkredit’s latest senior secured deal, an official at the issuer told The Cover on Tuesday. Almost 140 accounts produced its biggest order book yet for a senior secured deal.

Nykredit Realkredit launched a euro benchmark junior covered bond on Monday after marketing the deal as a senior secured transaction. This approach helped draw traditional covered bond buyers and credit accounts into the deal, which was priced at half the spread and with twice the orders that its last outing in the rare asset class achieved.

Covered bond issuers decided against bringing benchmark bonds on Friday despite a better backdrop, but there are several potential deals in the pipeline and stronger sentiment should encourage issuers looking to come next week, said bankers.

Nykredit announced a benchmark junior covered bond mandate on Wednesday, just a day after Standard & Poor’s warned that Danish covered bond ratings could become increasingly reliant on the junior asset class.

Covered bond syndicate officials are predicting as many as five deals will be launched next week following a wave of successful core transactions.

Interest only mortgage loans could destabilise an already stressed Danish housing market, Standard & Poor’s said on Monday.

Covered bonds should be exempt from the proposed European financial transaction tax, the Association of Danish Mortgage Banks (Realkreditrådet) has said, as it could raise mortgage costs in Denmark and hurt liquidity across bond markets.

After being absent from the euro covered bond market for nearly two years, Danske Bank made a surprise return on Thursday, mandating leads and opening books for a €1bn seven year deal priced at the tight end of guidance.

BRFkredit has launched a €4bn Euro-medium term note programme with a view to tempting German investors next year with a first quarter benchmark. Until now the Danish mortgage bank had relied on domestic standalone documentation.

Fitch has downgraded the covered bonds Realkredit Danmark uses to fund adjustable rate mortgage loans, just weeks before the Danish auctions begin. Meanwhile, European covered bond downgrades have increased sharply, Moody’s reported.