At this year's auction, other factors may influence borrower behaviour. First, the coupon rate fell from 4% to 2%, second, 2003 saw the introduction of interest-only loans, and third, the interest rate that applies to this year's refinancing auctions is at an all-time low, and the spread between this rate and the rate that applies to fixed-rate loans is considerable. Also, most mortgage banks now agree that interest rates are on their way up, which means that borrowers should fix the rate of interest for a longer period of time.
Despite the smaller-than-expected supply, resulting primarily from the larger volume of fixed-rate agreements, bonds worth almost DKK 180bn will be auctioned. The proportion of 3 and 5-year series is also smaller than expected despite prospects of rising yields and the fact that loans raised by the government to finance social housing will be changed from annual interest reset to interest reset every three years. Series with a coupon of 2% are currently expensive because of the large tax advantage that these series offer private investors. The supply of series in the 4 to 10-year segment is likely to remain modest, while the 1-year segment has a less significant tax effect and too heavy an issuing pressure to sustain prices at the high level prevailing at the moment.
Read the article "Europe's largest auction of mortgage bonds" in Focus no. 71 and see the webcast presentation by Jens Peter Sørensen at the Exchange's website www.cse.dk . Questions to the authors may be sent to the e-mail address: info@cse.dk until 11 December 2003. 9 December 2003