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Investors Ignore S&P Warning as Danish Mortgage Bank Bonds Gain

Investors shrugged off a warning from Standard & Poor’s pointing to potential risks in Danish mortgage banks’ funding model as bonds sold by the lenders gained today.

“It’s not something that’s changing the perception of the Danish mortgage bond market,” Uffe Kalmar Hansen, a credit analyst at Nordea Markets, a unit of Nordea Bank AB, said in an interview today. “There’s no market reaction.”

S&P late on Friday lowered its outlook on four Danish lenders, calling their funding profiles a “weakness” because of a mismatch between maturities on assets and liabilities. The rating company cut its outlook to negative from stable on the credit grades of Nykredit Realkredit A/S and BRFkredit A/S and reduced the outlook to stable from positive on Danske Bank A/S and DLR Kredit A/S.

The yield on Nykredit’s 3.5 percent interest-only bond due 2044 fell to as low as 3.614 percent compared with Friday’s close of 3.617 percent. The yield was down at 3.615 percent at 2:39 p.m. local time, according to Bloomberg generic prices.

Danish mortgage banks have spurned Moody’s Investors Service since the rating company two years ago began demanding they put up more collateral to retain top ratings in the $500 billion market. Copenhagen-based Nykredit, Europe’s biggest issuer of mortgage-backed covered bonds, and Realkredit Danmark A/S, the home-loan arm of Danske, responded to Moody’s criticism of its funding model by firing the rating company.

“There’s nothing new, as such, to the issues that S&P is raising,” Hansen said. “S&P is saying some of the things that Moody’s said a few years ago. The big difference is that S&P is drawing a different conclusion when it comes to the consequences.”

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