German Pfandbrief keeps its benchmark position in the covered-bond market

  • Additional safety due to the ECB's purchase programme and federal government backing
  • Fair value model signals potential for further narrowing of spread

In the asset class "covered bonds", the German Pfandbrief will continue to be the benchmark. This is the conclusion reached by the study "Deutscher Pfandbrief - Investment classic passes the stress test" presented by the Research Department of Helaba Landesbank Hessen-Thüringen. "Tradition, a strict statutory framework and a comparatively stable German real estate market enable the Pfandbrief to emerge from the crisis even stronger," explains Rainer Krick, Board Member of Helaba Landesbank Hessen-Thüringen responsible for Capital Markets. State-guaranteed bonds have not developed into overpowering competition for the Pfandbrief: The flood of state-guaranteed bond issues has already begun to subside again.

The situation on the primary market, in Helaba's view, has stabilized. In the first eight months of this year, around EUR 85 bn of Pfandbrief was issued. Support for this was mainly due to the European Central Bank's purchase programme. This envisages that the ECB will acquire a total volume of EUR 60 bn in covered bonds within one year. Accordingly, the number of issues has already risen and the spreads have narrowed. Furthermore, the amendment of Germany's Mortgage Bond Act takes into account the higher level of investment safety demanded by holders of such bonds.

The premiums for covered bonds have recently shown a marked decline. With the aid of a fair value model based on the yield curve and also the risk premiums on the equity and money markets, the Helaba analysts have concluded that the potential for a positive relative performance is not yet exhausted. In combination with the expected turnaround in interest rates and also the gradual return of investor confidence on the secondary market, the Helaba experts reckon that that risk premiums for Pfandbriefe will reach their cyclical low in the coming year.

The complete study can be downloaded at http://research.helaba.de

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Wolfgang Kuß

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Ursula-Brita Krück

E-mail: ursula-brita.krueck@helaba.de