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Jumbo Pfandbriefe |
Liquidity plays a special role where Jumbo Pfandbriefe are concerned. This market segment comprising large-volume Pfandbriefe takes its bearings from the liquidity requirements of trading-oriented investors.
Issue size
Jumbo Pfandbriefe must have a minimum issue size of EUR 1 billion.
Market makers quote tight two-way prices
However, size alone does not make this market so liquid. A further decisive feature is market making.
For the issuance of Jumbo Pfandbriefe, at least five – and often more – syndicate banks must perform the task of market maker. This means that during the life of the Jumbo they pledge to quote tight bid/ask prices upon request. These bid/ask spreads vary depending on the maturity range. The shorter the time to maturity of the Jumbo Pfandbrief, the tighter the recommended spread between bid and ask price (see Recommendations in the annex to the Minimum Standards). Add-ons must be at least EUR 125 million each.
Moreover, all Jumbo Pfandbriefe with a volume outstanding of EUR 1 billion or more and a time to maturity of more than two years profit from the market making commitment given by 17 institutions for the repo market in these issues.
Market Maker and Issuer Committee
In the summer of 2006, the Market Maker and Issuer Committee (MIC) was set up. The purpose of the MIC is to allow both sides to discuss current topics in permanent dialog, thereby ensuring that the quality of market making remains high.
Another aim of the MIC is to convene in the event of, or in the likelihood of, crisis situations in order to devise means by which the suspension of market making can be prevented or at least resumed as quickly as possible.
Success story of the Jumbo Pfandbrief since 1995
The history of the Jumbo Pfandbrief is a success story the like of which has seldom been seen on the international capital markets. The first Jumbo Pfandbrief was issued in 1995. At the end of June 2009, the Jumbo Pfandbrief market showed a volume of approx. EUR 245 billion.
Inspired by the success of the Jumbo Pfandbrief, other European countries created their own legal frameworks for issuing Pfandbrief-similar products. Today there is a European covered bond and Jumbo covered bond segment. The volume outstanding of Jumbo covered bonds alone came to more than EUR 850 billion at the end of June 2009, with this market segment comprising issuers from almost all EU countries. To find out more, please visit the website of the European Covered Bond Council (ECBC).
Jumbo Pfandbriefe represent complete yield curve
Roughly 160 Jumbo Pfandbriefe outstanding (as at 6/2009) together form a Jumbo Pfandbrief curve with residual lives of up to 10 years. Thus, the Jumbo segment offers a wide range of liquid investment opportunities that meets almost all investors’ requirements in terms of maturity and allows them to pursue complex relative value strategies.
Electronic trading of Pfandbriefe
Yet another feature which satisfies the liquidity requirements of institutional investors is the trading of Jumbo Pfandbriefe on electronic trading platforms. A number of such platforms have been set up since the end of the 1990s, and in many cases the Jumbo Pfandbrief plays an important role.
Liquidity combined with the traditional traits of the German Pfandbrief – top credit quality and an attractive yield pick-up over Bunds – make the German Jumbo Pfandbrief an attractive investment for domestic and international investors alike.
