25 years ago, Frankfurter Hypothekenbank issued a pfandbrief with an issue volume of the then sensational DEM 500m. This developed first into the jumbo pfandbrief market and later into a global market for euro benchmark covered bonds. Large-volume new pfandbrief issues are currently rare. The favourable refinancing offers of the European Central Bank (ECB), which in turn are a reaction to the corona crisis, are leading to the current issue lull. The lack of impulses from the primary market and the ongoing ECB purchases under CBPP3 are exacerbating illiquidity in the secondary market. The trademark of the jumbo pfandbrief, in addition to its high credit rating, has always been the demand for the most transparent prices possible and a high degree of liquidity for investors. In terms of liquidity, we wish the jumbo pfandbrief God speed on its 25th anniversary. From an investor’s perspective, new pfandbrief issues would be desirable at the moment. From the issuers‘ point of view, however, it is understandable that they should take advantage of the attractive refinancing offers of the ECB. A lot of money can be saved in this way. It is to be hoped that the banks will not become dependent on the sweet poison of the central bank and keep in mind that sooner or later they will be dependent on investors in the capital market again.
The covered bond market is particularly important for the eurozone. The favourable refinancing offers of central banks around the world are currently dampening primary market activities, not only in Germany. Although the ECB’s purchases can be seen as a great sign of confidence in this asset class, which supports the spreads of the covered bonds, the market is still in a state of crisis. However, they are also putting a considerable strain on market liquidity. Unfortunately, a normalisation of the market situation is not yet foreseeable. It is to be hoped that times will soon improve again.
There is still an overriding trend that is becoming increasingly evident in the covered bond market. In recent years, more and more issuers have issued large-volume bonds that meet certain social or ecological (green) sustainability criteria. Here the industry is trying to find a way to make a contribution to the transformation of our society towards greater climate neutrality in the coming years, for example by refinancing modernisation investments in residential and commercial buildings. Public sector financiers can also use public sector covered bonds to finance part of the costs incurred by public budgets as a result of the corona crisis. In our view, it can be said that the path of the jumbo covered bond, which began in 1995, is far from over.