Information on the use of cookies on the vdp website

The Association of German Pfandbrief Banks uses the Matomo software for anonymized web analysis. The data are used to optimize the website. Further information can be found in our data protection declaration.

Market Pulse

Pfandbrief market confirms growth trajectory

Dr. Frederik Kunze

Dr. Frederik Kunze


After an impressive start to the new year, the market for pfandbriefe remained dynamic in April and May 2024. In this respect, German Pfandbrief issuers also fit into the picture of a more than robust primary market beyond the first quarter of 2024. Although this applies in particular to issues in the EUR benchmark format, the growth trajectory is also confirmed outside of publicly placed deals with a volume of at least EUR 500 million. This pleasing underlying trend was underlined in the trading months of April and May by debut transactions on the primary market for both EUR benchmarks and sub-benchmarks. On the secondary market side, Pfandbrief spreads continued to reprice in April and May, even more strongly than their peers. The bottom line is that this process has recently been rather moderate. One reason for this continues to be robust investor demand, although there have certainly been some shifts seen from the relative value perspective.

In the EUR benchmark segment, we expect a gross new issue volume of Pfandbriefe in the order of EUR 26.0 bn in 2024. This expectation does not come close to the new deals placed in 2023 as a whole, when EUR 35.8 bn were issued. Nevertheless, our forecast exceeds the expected maturities (EUR 18.2 bn) quite impressively, meaning that the net new supply of Pfandbriefe in the EUR benchmark segment is likely to be EUR 7.8 bn. In purely mathematical terms, the Pfandbrief market reached the growth zone in May, i.e. six deals with a total volume of EUR 3.5 billion were placed in April and May, which together with the issues from the first quarter add up to EUR 18.3 billion. The robust investor demand mentioned at the beginning is reflected in the combined order book volume of EUR 9.7 billion, which implies an average oversubscription rate of 3.0x.
The months of April and May illustrate a trend that can be observed in the Pfandbrief market. The presence of savings banks in both EUR benchmarks and sub-benchmarks is increasing. In April, for example, Sparkasse Bremen made its debut in the sub-market for issues with a volume of ≥EUR 250 million and <EUR 500 million and placed a Pfandbrief with a seven-year maturity. The order book for the EUR 250 million deal totalled EUR 1.2 billion (bid-to-cover ratio: 4.8x). It was not only possible to narrow the issue spread from ms +50bp area to ms +43bp in the course of marketing. The deal also performed well on the secondary market. Together with the Pfandbrief issued by Landesbank Berlin a week earlier (EUR 250m; 10.0y; reoffer: ms +35bp) and the debut of Sparkasse Dortmund in March (EUR 250m; 7.0y; reoffer: ms +45bp), the volume of the German sub-benchmarks totalled EUR 750m (Ytd).

Compared to the EUR benchmark segment, there is still upside in this sub-segment of liquid issues.

However, this does not contradict the general growth trend for liquid Pfandbriefe. After all, following initial transactions in the sub-benchmark segment, some issuers have found themselves in the market for EUR benchmarks. Sparkasse Hannover, for example, ventured into the benchmark segment in May and placed EUR 500m (also 7.0y) at ms +35bp. This debut appearance was also followed by a noticeable performance in the secondary market during the book opening phase, which also reveals the focus of a large number of investors on the newly placed product.
Investor demand on both the primary and secondary markets is strongly driven by relative value considerations. For Pfandbriefe, the focus is often on comparisons with traditional rate products, but also with their peers in other jurisdictions. In the generic view of the spread of Pfandbriefe over Bonds, Pfandbriefe continue to trade at a comparatively high pick-up.

Nevertheless, the premium over German government bonds – visualized here using the “10y spread” as an example – is below the long-term average, which is likely to dampen demand from a relative value perspective. On the other hand, Pfandbriefe, which are widely perceived as expensive, were somewhat more attractive compared with their covered peers. The pronounced catch-up movement in the repricing process, which Pfandbriefe has undergone and which was exaggerated by emerging uncertainties in the context of developments in the CRE segment, even resulted in negative premiums compared to Pfandbriefe in some maturity buckets (for example, covered bonds from the Netherlands or France). From a technical perspective, this could be seen as a buy signal – at least for some investors.