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Uneasy times for a market that was built on certainty

The uncertainty that has permeated the Pfandbrief market in the past two years persists. Investors are getting more choosy about issues, competition is intensifying in the underlying lending businesses and new regulations are adding their own challenges, some of which offer opportunities for diversification as well as restrictions.


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The Pfandbrief market is changing radically. Investors used to trust in the instrument's long, default-free `history, supported by ring-fenced, high-quality collateral pools. Issuers could pursue their traditional businesses of real-estate finance and public-sector lending and issuing Pfandbriefe on the back of the resulting loans. This gave them strong growth without much need to expand into new areas. In the past two years, though, investors have been differentiating between individual Pfandbrief issuers to an unprecedented extent. And the spread volatility that has accompanied actual or rumoured downgrades shows that the bonds' theoretical remoteness from bankruptcy is no longer seen as absolute. Rating agencies exert unprecedented leverage over the market and they have been increasingly sceptical that it can continue on its placid course much longer.

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