Denmark

Markets stabilised on Tuesday morning following S&P’s announcement that it may cut sovereign ratings across the eurozone, ending three days of sovereign tightening. Overall the tone remains constructive, according to covered bond traders, with better buying in French and peripheral covered bonds. But with only a couple of weeks of trading to go before year end, and covered bond spreads not following sovereigns tighter, issuers are still most likely to wait for an opportunity in January.

Realkredit Danmark looks set to secure lower interest rates next year on adjustable rate mortgages after a successful week of bond auctions. Foreign investors have been marginally more active than last year in the bond sales, according to Danish brokers on the deal, confirming that Denmark retains safe haven status. Nykredit started its refinancing sale on Tuesday and will hope to emulate Realkredit's success.

Realkredit Denmark kicked off the Danish auction season on Monday, with sales in both euros and Danish kroner.

Peripheral covered bonds tightened against government debt on Monday, undoing sovereign outperformance following last Thursday’s rally. Bid offer spreads continued to widen across the board as participants remain cautious ahead of purchase programme details.

Stress in bank funding markets, exposure to troubled eurozone sovereign bond markets and moves away from implicit government support have affected the creditworthiness of many global banks. But Standard & Poor’s approach to covered bond ratings means they should remain resilient compared to other agencies.

The concept of liquidity has changed over the course of the financial crisis. Where once it may have been viewed as a free ticket, it is now highly valued — for without liquidity there cannot be a market. Covered bonds are comfortably at the most liquid end of the credit spectrum, but the way they are traded has completely changed since the onset of the financial crisis.

Standards & Poor’s has assigned covered bonds issued from BRFKredit’s Capital Centre B and Capital Centre E preliminary triple-A ratings, on stable outlook. These ratings replace those of Moody’s, which the issuer dropped, due to disagreements over rating methodology.

A stronger than normal bid from Nordic investors helped Finland’s Sampo Housing Loan Bank to sell a no grow €1bn five year covered bond, its second benchmark this year, on Wednesday.

Moody’s has downgraded the mortgage backed covered bonds of two of BRFkredit capital centres, after downgrading the issuer from Baa1 to Baa3 in early July.

Finland’s Sampo Housing Loan Bank launched a five year deal on Wednesday, three weeks after it finished a European roadshow. The deal attracted a wide range of accounts and looks assured of success, boding well for other smaller bank issuance.

Caisse de Refinancement de l'Habitat is poised to price a €1.4bn 12-year deal at the tight end of mid-swaps plus 120bp-125bp spread guidance. With a book in the region of €1.6bn, supported by robust Nordic, German and UK demand, the deal is a strong endorsement of the French banking system. Though there is doubt over whether other French issuers will follow its lead, the market is clearly there for the right name at the right price — as today’s DNB Nor Boligkreditt’s mandate announcement illustrated.

With the covered bond market waiting for constructive news out of Thursday’s ECB meeting, primary activity on Wednesday was limited to a €200m tap of Crédit Agricole’s 2021s. Syndicates said the tap showed investors were not totally sidelined, but the market — like other asset classes — was in desperate need of a message that would restore confidence and allow new issuance to be absorbed in the secondary market without provoking a sell-off in outstanding bonds.