A survey conducted by NordLB at a covered bond event hosted by the German bank showed investors to be more open to risk across a variety of measures, with lower ratings, partial pass-through structures and a wider range of jurisdictions all increasingly acceptable.

Matthias Melms, NordLB

Held on Thursday of last week (7 November), the survey posed questions to more than 60 representatives of investors, including savings banks, co-operative banks and private banks, as well as insurance companies, asset managers and pension funds.

“All the answers showed an increasing appetite for risk among smaller German investors,” Matthias Melms, NordLB covered bond analyst, told The Covered Bond Report. “This continues what we have seen over the past couple of years.

Some 31% of investors polled cited peripheral jurisdictions as their preferred country or region, compared with only 7% a year ago. Ireland scored highest, being picked by 13% of respondents, but interest in Italy and Spain, each with 9%, also continued to increase steadily. Core jurisdictions were the top pick for 64% of respondents, down from 91%.

However, the aggregate result of the survey showed a clearer and more positive view on the performance of German Pfandbriefe relative to the overall market: the average of responses for the expected performance of Pfandbriefe was a 4bp tightening, versus 2bp for the overall market.

Melms said that the average overall market figure masked a split in opinions among investors, with some expecting a tightening of as much as 25bp and others a widening of a similar amount.

“The survey showed that there is no clear picture for the whole market,” he said, noting that many of the respondents had only recently begun diversifying out of German Pfandbriefe.

After the Netherlands’ NIBC launched the first conditional pass-through covered bond in October, NordLB asked investors if they would invest in similar structures, and 65% said they would consider doing so – although most said they would require a spread pick-up over traditional covered bonds.

Regarding ratings, only 12% consider Aaa/AAA necessary, NordLB found – the lowest level in any of its last four surveys.