The Pfandbrief market is emerging from Europe's summer doldrums with new vigor based on a stronger euro, revived jumbo Pfandbrief bond issuance in Germany, and the extension of the Pfandbrief concept to other European countries-especially France and Spain. For most of the summer. volatility in the German government bund market meant volatility for Pfandbrief collateralized bonds, too. The market was sustained more hy the handful of top German market maker banks than by investors. but internaltional interest picked up almost immediately when the euro started strengthening against the dollar in late July and early August.
A more attractive euro will translate into more attractive Pfandbriefe issues. Many investors have remodeled their investment spectrum since the launch of European Monetary Union," says a current report on the Pfandbrief market from Commerzbank's mortgage banking subsidiary- Rheinhyp. "Pfandbriefe already carry considerable weight in constructed indexes and in defined benchmarks. (Changes in the market situation, such as an end to the euro s weakness. maquickly revive jumbo market activity."
Thus the adjustments in the market today are taking place within the context of investor acceptance of Pfandbriefe as a major asset class--and Europe's largest bond market. The Pfandbrief market has enjoyed phenomenal growth since the jumbo issues were introduced four years ago: says Stefan Dreesbach, head of jumbo Pfandbrief and bond options trading for WestLB in Dusseldorf. "This has happened because the interest rate cycle has been positive for these bonds and because German banks made the commitment to build the jumbo market. Today, with more than EUR200 billion in jumbos outstanding, the market has evolved from the old `closed shop' approach of the traditional Pfandbriefe into an open, international market with foreign investors holding 40% of all jumbos."
Along the way the minimum size of the jumbo deals has doubled from DMI billion to 1 billion, with most averaging EUR1.5-2 billion. Plans for a new EUR5 billion jumbo issue-the largest ever-were revealed by Frankfurt's Allgemeine HypothekenBank (AHB) in mid-August. Some market observers in Germany grumbled that this deal was "pushing the envelope" with an issue that was too big for current market conditions. But others saw it as a positive development, emphasizing German leadership in a market that is likely to be much more crowded soon with a swarm of Pfandbrieftype issues from around Europe.
"The French and Spanish want to come into this market, and we will be seeing deals there soon," says Gabriele Miller, who handles new issues and international syndication for HypoVereinsbank in Munich. "You can expect a couple of issues of around EUR1.5 billion each by Credit Foncier and Credit Local de France in September. In Spain, Caja de Madrid will invite bids early in September from banks interested in participating in a EUR1. …