Denmark: investors look to the December rush
Nordic mortgage bonds have been tipped as a major growth area for some time. Denmark and Sweden in particular have long-established, stable markets that have been steadily attracting interest from outside over the past few years. Swedish mortgage bonds are not strictly covered, since the collateral loans remain on the issuer's balance sheet. Many covered bond participants see them as still primarily a domestic play with sporadic foreign interest at best. But bankers in the Nordic markets say the paper is attracting more and more demand from non-traditional buyers. The Danish market's long end is made up of callable bonds similar to the most liquid part of the US MBS market. It has long attracted considerable interest from US accounts, which find the callable structure comfortably familiar. In 1997 and 1998, these accounts started taking big tickets in long-dated Danish paper. Many of them were hurt badly by the Danish mortgage crisis. US accounts retain a large share of the market and trade actively, but are no longer net buyers. The high option-adjusted premia that originally attracted them have now fallen slightly.
More interesting for European investors at the moment are short-dated non-callable Danish mortgage bonds.