Denmark

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.

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.