LIFE FOR MANY Pfandbrief issuers is less miserable than it has been in recent years, but it's still not much fun.
The steady credit deterioration and spread volatility that have made Pfandbrief issuance such a trial over the past two years has slowed down. Germany's revised mortgage bank law gives issuers new and welcome tools, such as the ability to use derivatives in Pfandbrief cover pools to reduce risk. And the more responsible and transparent approach to the primary markets that most issuers have adopted is starting to bear fruit. Several successful deals this year seemed to offer hope to the market, as investors scrambled for highly rated assets.
But uncertainty may reduce capital markets activities to a minimum for the foreseeable future. More changes to the Pfandbrief legal and regulatory framework are needed. Some issuers want to be regular, agency-style liquidity providers. Smaller competitors are more likely to be scaling back their regular visits to the jumbo markets in favour of more strategic issuance when conditions allow, combined with greater use of alternative funding strategies.
