Pfandbrief Investor

By McCrary, Ernest S. | Global Finance, November 1997 | Go to article overview
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Pfandbrief Investor


McCrary, Ernest S., Global Finance


The Pfandbrief market is thriving, as Germans and an increasing number of international investors have shown a fast growing appetite for these collateralized bonds since mid-1995. That was when the first jumbo issues of at least DM1 billion were launched, creating a broader and deeper market for what had been a mostly German-traded security in the 200-year-old "traditional" Pfandbrief market.

In little more than two years, the market for jumbos has gone truly international as the number and size of new issues give Pfandbriefe more depth and liquidity. Reflecting the size and maturity of the market. Deutsche TerminborseGermany's largest derivatives exchangeannounced plans for trading Pfandbrief futures contracts.

"The liquidity is there in jumbos now," says Gina Leu, a director of Deutsche Genossenschaftbank (DG Bank) in Frankfurt and head of global fixed income and derivatives institutional sales. "It still does not match the liquidity of the government's bund market, which routinely has DM10 billion issues, but jumbo Pfandbriefe should reach a level of DM5 billion soon. Futhermore, over the next five years, due to the tendencies of the mortgage bank market, the volume per issue of jumbo Pfandbriefe is bound to increase."

As one of the three or four German banks that have taken the lead in founding the modern Pfandbrief market, DGBank has a unique "natural placement basis" as the clearing bank for 2,500 German cooperative banks, says Leu. "As measured by the number of deposits, the German co-op banking sector has a market share of some 22%, which makes DG Bank and its co-op partners the second-biggest banking network in the country.

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