Denmark

Covered bond bankers expect the Greek parliament to approve austerity measures in today’s vote, but even if that happens, they do not expect much of a relief rally. If the measures are not approved then it’s likely that the consequences will be catastrophic.

Following Amagerbanken's collapse, Denmark’s Fjordbank Mors has become the latest bank casualty after it failed to meet the local regulator’s solvency requirements. The bank’s failure comes amidst growing concern over the country’s high household indebtedness and increased rating agency scrutiny of local covered bond programmes. Realkredit Danmark and Nykredit have both restructured their covered bond pools, isolating adjustable rate mortgages. Other issuers are expected to follow. And, in response to Moody’s increasingly draconian approach, Realkredit has dropped the agency.

Two Danish issuers completed auctions of mortgage backed covered bonds to refinance adjustable rate mortgage (ARM) loans this week. Nordea Kredit Realkreditaktieselskab sold DKK11bn on Wednesday, and Realkredit Danmark on Thursday auctioned Eu680m of one year bonds.

Covered bond analysts have turned their attention to rising house prices in Scandinavia, following a report by Standard & Poor’s, which warned that rising private sector debt to GDP levels, fuelled by increased mortgage borrowing, could present a danger to banks and their assets in the event of a severe economic downturn.

Sampo Housing Loan Bank sold a Eu1bn 10 year transaction on Tuesday, which despite high credit and cover pool quality priced at the wide end of guidance. Syndicate officials pointed to a rise in rates and general aversion to risk among investors as two factors that held the transaction back.

Moody’s increased the refinancing margins and lowered the timely payment indicators (TPI) from very high to high on 12 Danish covered bond programmes on Friday, following a rise in adjustable-rate mortgage loans (ARM) in Danish cover pools.

As a proxy for national mortgage markets, LBBW research has taken a closer look European mortgage pool statistics and macro-economic housing market trends. Controversially, it finds that Spanish NPLs have halved in the last two years. In contrast Scandinavia, which is stereotyped as safer than safe, could be heading for trouble as house prices reach 30-year highs.

Though the covered market was quiet on Friday, market participants can look back on highly successful week in which almost Eu7bn in euro benchmarks was issued. After faltering supply in April UniCredit analysts report that covered bonds are on track for another record month. Issuance thus far in May is almost Eu20bn, less than Eu2bn short of the record total supply for that month.

After two weeks without benchmark issuance market participants are looking past the UK royal wedding and May Day holiday to a resumption of primary market activity on Tuesday. Syndicate officials were modest in their expectations however as, with peripheral markets effectively closed and some core names in blackout, prospective issuance from for core jurisdictions appears sparse.

Recent hawkish comment’s from the ECB president Jean Claude Trichet have helped to boost demand in the Danish covered bond auctions, which entered their second day today.

German 10-year Bunds are correcting slightly higher this (Friday) morning, but a long term trend of rising yields that has been in place since August remains intact. As a result, real money accounts are increasingly hitting their target returns –a driving factor behind a hugely upsized increase of a tap for Caisse de Refinancement de l’Habitat.

A final Nykredit auction on Monday concluded end-of-year auctions of interest-reset mortgage bonds held by Denmark’s mortgage credit institutions for this year. Investor interest was lower than last year, but borrowers look set to benefit from mortgage rates that will be reset to low levels compared with previous years, according to Danske Bank analysts.