Danish Callable market continues to be stable

The Danish callables market has stabilised for now, after the first half of 2015 which gave us massive issuance and early redemptions. The likelihood of large-scale early redemptions has now fallen greatly as outstanding amounts in high-coupon bonds have been reduced significantly. 

The majority of callables borrowers are now placed in bonds with coupons between 2-3%. With the 3% 2047 close to par and trading at high OAS levels this implies that there is  need for the long-dated 30-year mortgage rate to fall 75-100bp before any "mortgage action" will be seen again, with borrowers starting to redeem their current bonds in favour of other low-coupon alternatives.

"As Danish rates yields are correlated to German yields and take their cue from them, this suggests that the German 10-year has to fall by 75-100bp, which at current levels and conditions have a hard time being seen. Spreads appear to have found a new level after widening and they are expected that they will stay there for the time being", says Nordea Bank.