The vdp Issuance Climate survey recorded a positive overall score for the first time last month, with the Pfandbrief component also achieving its highest ever score in its sixth biannual iteration, although the prospects for the next six months are mixed.

In the survey, on a scale from minus 100 to plus 100, members of the Association of German Pfandbrief Banks (vdp) assess over the past six months, the present, and coming sixth months a variety of drivers in the capital markets environment and their impact on issuance plans.

The overall aggregate score for the June survey, covering Pfandbriefe and unsecured debt, was 1, up from minus 14 in the last survey, in December 2024, and compares with a previous high of minus 12 recorded in mid-2024. The score for unsecured bonds came in at 5, up from minus 8.

“If you look at the geopolitical situation, with so many risks and such high uncertainty, it’s something of a surprise that things are going so well,” Sascha Kullig, management board member at the vdp, told The CBR, “not so much regarding the covered bond market, which has proven itself in crises, but markets overall.”

The score for Pfandbriefe was up 17 points, rising from minus 18 to minus 1 – the previous high, minus 10, was in the first survey back in December 2022.

Sources for all charts: vdp, Börsen-Zeitung; Graphic: www.igrafik.de

The highest score in the latest survey was 89 in respect of current investor demand for Pfandbriefe, with current oversubscription levels scored at 43.

“The results reflect the current situation in the market very well,” said Kullig. “Demand is very high, as you can see in the poll result and also if you look at the transactions that have come to market – usually big oversubscriptions and a big difference between IPTs and pricing, with very low NIPs, if any.”

The findings regarding market conditions so far this year also accord with demand expectations conveyed in December, when Pfandbrief issuers forecast that oversubscription levels would pick up sharply.

The lowest score in the survey, minus 60, was for the current level of Pfandbriefe versus swaps, with the situation forecast to be less bad in the coming six months, at a score of minus 40. Although covered bond spreads have proven resilient to the year’s volatility, they remain elevated by historical standards – the latest Pfandbrief benchmark, a €1bn short 10 year for DZ Hyp on Tuesday of last week (24 June), was priced at mid-swaps plus 46bp.

And issuers are pessimistic about the outlook for the second half: the score for investor demands over the next six months drop from their current scores in the 80s to minus 5 for Pfandbriefe and minus 20 for unsecured debt.

“Our members are more cautious given the great uncertainty surrounding us,” said Kullig. “Perhaps they do not trust the current positive situation and also don’t see much space for spreads to tighten further.

“There’s pressure on public sector entities, issuers who enjoy a lower risk weighting than Pfandbriefe,” he added, “and the spread difference between SSAs and covered bonds is already very close.”

The survey score for the premium to Bunds came in at minus 11 at present and minus 17 for the coming six months.

Kullig also noted that the forward-looking score for the lending business to be refinanced has eased, albeit remaining in positive territory, at 25.

“The residential sector is running perfectly fine,” he said. “We have seen a huge increase in the lending business there. We have also seen an increase in the transaction volumes of commercial real estate, but still on a low level, and there is more uncertainty than on the residential side.”

The score for upcoming maturities in the second half of the year was minus 9 for Pfandbriefe.

Overall Pfandbrief issuance totalled €31.5bn to the end of May this year, 5% more than in the first five months of 2024, with benchmark issuance of some €23bn. According to a turn of the year survey, vdp members expected to issue just under €50bn of Pfandbriefe across the year.

“June was quite a busy month, so we could end up in June at something like €38bn,” said Kullig. “We are quite cautious, because we have the impression that some banks have already achieved much of their funding plans for the year.”