Denmark

Fixed rate mortgages are outpacing adjustable rate lending in Denmark for the first time since 2008, according to the Association of Danish Mortgage Banks. But analysts still expect one year adjustable rate bonds to dominate the December auctions.

With peripheral concern resurgent, covered bond investors are looking for safety. But having grown tired of exceptionally tight core levels they are also in search of spread. Nordic issuers are best placed to offer them both and should be taking advantage of the primary while they can, said syndicate bankers.

Sampo Housing Loan Bank brought its first benchmark covered bond in almost a year on Thursday, pricing a successful €1bn no-grow jumbo trade.

Danish mortgage lenders will benefit from a new best practices aimed at limiting the sale of variable rate and interest only mortgages, said Moody’s on Thursday. The rating agency report came as yields on Nykredit’s one year adjustable rate bonds hit fresh lows, making short dated variable rate mortgages even more attractive.

Nykredit Realkredit kicked off the Danish auction season on Wednesday, selling one and three bonds with lower absolute yields than ever before. One year bonds will dominate the auctions, though mortgage lenders are trying hard to push borrowers towards longer dated loans, to smooth out maturity profiles ahead of Basel III.

Sparebank 1 Boligkreditt on Monday returned to the euro market for the first time since January. The rare borrower priced a five 1/2 year benchmark many times cheaper than where it sold a longer trade at the start of the year, exemplifying the sustained tightening in core covered spreads.

The stressed cover pool losses of Australia’s covered bonds are worse than those in core Europe, Moody’s first performance overview of the jurisdiction revealed on Tuesday. However, Australia still boasts highly rated issuers and impressive collateral scores.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

Secondary covered bonds spreads are grinding tighter as buyers faced with negative yields in the sovereign market drive short dated covered yields towards zero. While core jurisdictions wallow in a sea of demand, investors are still averse to peripheral paper, but the wide spread gap could cause Spanish and Italian spreads to bounce back, said bankers.

Bayerische Landesbank (Bayern LB) launched its first euro benchmark covered bond in over a year on Wednesday, bringing a 10 year public sector backed Pfandbrief originally mandated in July 2011. The trade prioritised pricing over size and received less interest than recent German deals. At the less traditional end of the covered spectrum, Nykredit Realkredit opened books on a tap of a recently issued junior covered bond.

The senior market took centre stage again on Tuesday, dissuading covered issuers from competing with another trio of unsecured trades after Westpac’s slow bookbuild on Monday. The Australian issuer closed the spread gap with its Nordic peers, but found demand lacklustre compared with earlier Australian benchmarks.

Swedish banks head a group of possible covered bond issuers, despite resurgent volatility. The Swedes have largely stayed away from the euro market so far this year, opting instead to rely on domestic demand. But analysts still expect the need for diversification and name recognition among Swedish banks to yield euro benchmarks.