Help could be at hand for market makers in jumbo Pfandbriefe that want to hedge spread movements between different issuers.
While the travails of AHBR put the spotlight back on liquidity in the jumbo Pfandbrief market last month, JPMorgan was trading the first Pfandbrief credit derivative. The derivative references an issuer’s public sector or its mortgage Pfandbriefe, and is triggered by a failure to pay on any of these bonds, which are physically deliverable.
“Unlike some other credit derivatives backed by securities, such as CDS of ABS, this trade is quite simple,” says JPMorgan’s Michael Poppel, vice-president in financial institutions derivatives marketing.
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