Press release of June 8th, 2000
Copenhagen - Reuters, the global information and news group, and Scanrate Financial Systems, a Danish software developer, today launched a new real-time pricing and analytics service for the Danish Mortgage Backed Securities (MBSs) market. It will provide the market with a single, documented reference price calculation for all Danish MBS instruments.
Danish MBSs are pools of mortgage debt, repackaged to create tradable securities. Any of the underlying mortgages can be repaid early by property owners. When this happens, the issuer has the legal obligation to withdraw from the market as many bonds as necessary to re-establish the balance between creditors and debtors.This assures that the Danish MBSs are solid and have high credit ratings. However, it also makes the exact maturity of the security uncertain. Consequently pricing of MBSs is very complex with the brokers and mortgage companies providing the main guide.
This new service's pricing calculation model is based on swap-yield curves and will enable Reuters customers to receive key analytics such as option-adjusted values, spreads, durations, convexity and other advanced measures for all MBS instruments.
Denmark's bond market is dominated by the substantial Danish MBS market.It is Europe's second-largest mortgage market, after the German Pfandbriefe, with some 1.243 trillion crowns (US$155 billion) outstanding at the end of 1999, almost twice the size of the government's bond market. The Danish MBS benchmark 2029 series alone has 222 billion crowns outstanding, one of Europe's biggest.
Large international investors are drawn to the Danish MBS market by the yield pick-up they provide over Danish state bonds, especially since European Monetary Union removed many of the big government yield spread previously available.Foreign investors started buying MBS' when Danish mortgage institutions were given international credit ratings in the mid-1990s. Currently foreigners hold over 10 percent of outstanding Danish mortgage bonds, up from three percent in the early 1990s.
Jean-François Rallier,general manager of Reuters Danmark A/S, commented:
"Valuing the Danish MBSs has always been very complex, be it for trading or for risk analysis purpose.The constant research and development of new adjustment models requires highly skilled resources, rarely available to many investors, particularly foreign ones.With the introduction of this innovative service, Scanrate Financial Systems and Reuters have combined their expertise and unique position of independence and freedom from bias to propose a reference. It will enable the buy-side to easily and reliably value their positions while the sell-side will benefit from renewed global investors' interest.We expect the demand for Danish MBSs to continue to grow."
Svend Jakobsen, ScanRate A/S, commented:
"With Reuters real time technology analysts are able to compare the DMBS results with in-house calculations. Everyone will of course take his or her own view, but it is our hope that the DMBS model could serve an important job as a common reference point in the communication between traders and investors in the mortgage bond market."