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In the past two summer months, a total of EUR 26 benchmark deals amounting to EUR 21 billion came onto the covered bond market. Both July (EUR 7.5 billion) and August (EUR 13.5 billion) saw above-average momentum. With eight transactions totalling EUR 5.25 billion, German Pfandbrief issuers played a key role in maintaining the dynamics in the primary market beyond the summer break.

The summer lull lasted 28 days from July 19 to August 15, slightly below the 10-year average of 33 days. Almost in keeping with tradition, Berlin Hyp reopened the EUR Benchmark Covered Bond primary market for the fifth year in a row. The 5-year Social Pfandbrief was already the fifth EUR benchmark placement of the Berlin-based institution this year and at the same time the fourth ESG Pfandbrief in 2023 (2x green, 2x social). Only one day later, DZ Hyp – also with its fifth EUR benchmark issue (or its third Green Pfandbrief in 2023) – provided additional “green” supply. In calendar weeks 34 and 35, Commerzbank, HeLaBa and Münchener Hyp added to the visits of German Pfandbrief issuers. Commerzbank (4 Mortgage, 1 Public Pfandbrief) and Münchener Hyp (4 Mortgage, 1x green) also built on earlier appearances.

In parallel to reopening of the covered bond primary market, the capital market environment remained characterized by persistent interest rate and economic uncertainties, which continued to be reflected by the inverse yield curve. As a result, German Pfandbrief issuers also chose shorter and medium maturity ranges for their deals and did not exceed the 5-year maturity bucket. At 5.3 basis points, the average new issue premium after the summer break was slightly below the overall market average. The oversubscription ratio was also slightly better than the overall market with an average book-to-cover ratio of 2.1x (average book-to-cover ratio 1.8x). Especially the ESG issues of Berlin Hyp and DZ Hyp experienced above-average demand in the still somewhat calmer market environment immediately after the summer break. The average narrowing between the initial price guidance and the final spread was 3 basis points, which is roughly in line with the market as a whole.

Away from actual primary market activity, Bausparkasse Schwäbisch Hall published its new Green Bond Framework in mid-August. In perspective, another ESG debut on the Pfandbrief market can be expected soon. Currently, 12 German ESG issuers are represented in the covered bond market (9 of which are ESG EUR benchmark issuers). Like the other German ESG issuers, Bausparkasse Schwäbisch Hall aligns its Green Bond Framework with the ICMA Guidelines and the vdp Minimum Standards for Green Pfandbriefe.

EUR benchmark Pfandbrief placements in July and August

After the first eight months of the current year, the German EUR benchmark Pfandbrief volume now totals EUR 31 billion or 48 transactions and is thus some 13% higher year on year (Jan-Aug 2022: EUR 27.6 billion or 35 deals). Compared to 2022, a persistently high significance of sustainable Pfandbrief funding (EUR 5.25 billion vs. EUR 5.75 billion) can be observed. In addition, the topic of social (re)financing is becoming increasingly important (EUR 1.5 billion vs. EUR 1.25 billion). In the covered bond market as a whole, a total of EUR 157.1 billion had come to the market in the EUR benchmark segment by the end of August 2023. With a share of 20%, German Pfandbrief institutions rank second here behind French issuers (24% or EUR 37.9 billion).