The updates are based on the results of an in-depth analysis of the composition of the average Danish undertakings' portfolio and the average Danish krone denominated (sub-)portfolio. The analysis provided further insight on the legal and economic background of the Danish covered bond market and confirmed that these assets dominate the relevant portfolios.
To capture the features of Danish covered bonds in the risk-free rate methodology accordingly, henceforth an improved version ("option-adjusted") of yield and duration data of a dedicated index for these contracts, the "Nykredit realkreditindeks", is used in the production process of the risk-free rate.
In addition, to ensure consistency in the RFR calculation, assets reported by undertakings as being "unrated" were reallocated to the Solvency-II-inherent stepping of credit risk classes (Credit Quality Steps - CQS) by differentiating between financial and non-financial ones.
Furthermore, the technical documentation contains some minor amendments in the use of data fields of certain Markit iBoxx indices for the RFR calculation. These non-material changes for a limited number of corporate bonds were necessary to fully unify the concepts used across currencies and CQS.
The updates will be implemented with the upcoming risk-free rate production cycle for end-August 2018, to be published beginning of September 2018.
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