For Jumbo Pfandbriefe, the liquidity of an issue is especially important since this market segment of big-volume Pfandbriefe takes its bearings from institutional, international investors’ conceptions of liquidity. This is why Jumbo Pfandbriefe are required to have a minimum issue volume of 500 million euros. The average size of Jumbo Pfandbriefe outstanding is in excess of 1.5 billion euros. Some Jumbos have a volume of up to 5 billion euros. Thus, the volume of Jumbo Pfandbriefe is equal to that of bonds brought by medium-sized sovereign issuers in the euro zone.

Market-makers quote tight bid/ask prices

But it is not just the volume that makes this market so exceptionally liquid. A further key feature is market-making. Jumbo Pfandbriefe are syndicated by at least three – and often more – underwriting banks which pledge to act as market-makers, i.e. to quote tight bid/ask prices, depending on the maturities spectrum, simultaneously during the life of the Jumbo. For example, the recommended spreads are five 5 eurocents for terms of up to 4 years, 6 cents for terms of 4 to 6 years and 10 cents for terms of 8 to 15 years for a ticket of up to 15 million euros. Taps must have a volume of at least 125 million euros in each case. Over and above this, all Jumbo Pfandbriefe with a volume outstanding of 1.25 billion euros or more and a residual term of more than two years profit from the market-making pledge given by 17 institutions for the repo market in these issues.

 
 
Jumbo Pfandbrief outstanding (in billion Euro)
 
 

 
Inaugural Jumbo Pfandbrief in 1995

The development of the Jumbo Pfandbrief is a success story seldom recorded on the international capital markets. The first Jumbo Pfandbrief was launched in 1995. Today, with a volume outstanding exceeding 400 billion euros, the Jumbo Pfandbrief market is on its own Europe’s fourth-largest bond market, surpassed only by the government bonds of Italy, Germany and France. Incidentally, the overall Pfandbrief market, with a volume outstanding of more than 1.1 trillion euros, is the biggest bond market in Europe. This figure comprises the issues of the mortgage banks and Landesbanken, including the smaller traditional (plain vanilla) and structured Pfandbriefe as well as the Jumbo Pfandbrief segment.

Jumbo Pfandbriefe span complete interest rate curve

Some 270 outstanding Jumbo Pfandbriefe together form a Jumbo Pfandbrief curve with residual lives of up to 15 years. In this way, 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

A further feature that satisfies institutional investors’ need for liquidity is the trading of Jumbo Pfandbriefe on electronic trading platforms. These include EuroCreditMTS, which became operational in May 2000. To be eligible for trading there, bonds must meet stringent credit criteria (e.g. Triple A credit from S&P or Moody’s) and a minimum volume outstanding of 3 billion euros. What is more, issuers must show a volume outstanding of big bonds in the amount of at least 10 billion euros. Jumbo Pfandbriefe account for more than 80 % of the issues traded on EuroCreditMTS.
Liquidity combined with the traditional traits of the German Pfandbrief – top credit quality and an attractive pickup over Bunds – make the German Pfandbrief an attractive investment for international investors.