vdp Issuance Climate survey: Pfandbrief market sentiment brightens significantly

• vdp Issuance Climate in slightly positive territory for the first time since the survey was launched

The sentiment on the market for Pfandbriefe and for unsecured bank bonds has brightened significantly, according to the member banks of the Association of German Pfandbrief Banks (vdp). This is the finding of the sixth vdp Issuance Climate survey. For the first time since the survey was launched in December 2022, positive values have been reported for the overall score (+1 compared with -14 in December 2024) and for unsecured bank bonds (+5 compared with -8 in December 2024). The score for Pfandbriefe is in slightly negative territory (-1 compared with -18 in December 2024).

The vdp Issuance Climate survey is conducted and published twice a year. The sentiment indicator ranges from -100 to +100 points. Compared with the December 2024 survey results, the overall score as well as the two individual scores for Pfandbriefe and unsecured bank bonds have seen a double-digit improvement.

Strong improvement in scores reflected in demand, too

A marked improvement was also seen in investor demand for Pfandbriefe – on the one hand, looking back over the past six months, and on the other, with regard to current market activity. The values of +65 and +89 points are also reflected in strong Pfandbrief sales. Unlike numerous European covered bond markets, where sales are in some cases 20% to 30% below levels for the corresponding period one year earlier, the vdp member banks were able to place new Pfandbriefe worth EUR 31.5 billion in the first five months of this year. This represents an increase of 5% compared with the corresponding period one year earlier. Public Pfandbriefe totalling EUR 8.7 billion were issued, which works out at an increase of 31%. The vdp member banks expect to achieve sales of new Pfandbriefe of just under EUR 50 billion in 2025. This means that, without maturities, net sales in the current year would amount to just under EUR 4 billion.

“We are very pleased to note the good demand for Pfandbriefe in the current year, right across the maturity spectrum,”

commented Sascha Kullig, Management Board member of the vdp.

Investor demand for unsecured bonds issued by the vdp Pfandbrief banks has also improved substantially. This is reflected in the scores for the past six months and at present of +57 and +80 points.

Guarded outlook for the next six months

In contrast with the strong demand for Pfandbriefe in the past six months, the surveyed capital market experts from the vdp member banks are more guarded with regard to the coming six months, as the score of -5 points shows. They are upbeat about their expectations for the oversubscription level (+16 points) and the lending business to be refinanced (+25 points). The upturn in the granting of property loans plays an important part in the score for the lending business. Total financing provided by the vdp member banks in the first quarter of this year rose to EUR 36.1 billion. This represents an increase of 24.5% against the corresponding quarter one year earlier. Amongst others, the score for the asset swap spread level was in negative territory. However, a marked improvement is anticipated for the coming six months (-40 points as opposed to currently -60 points).

The expected development of investor demand for unsecured bank bonds over the next six months presents a similar picture: a score of -20 points was calculated compared with +80 points at present. Here, too, the very strong investor demand for these bonds to date is likely to have had an effect.

Yield forecast for 10-year Bunds

The score for the future development of the yield pick-up over Bunds, which reflects the attractiveness of Pfandbriefe over government paper, is calculated at -17 points as opposed to currently -11 points. The, at present, comparatively low yield pick-up over Bunds could potentially have a slightly negative impact on demand for Pfandbriefe. Regarding the 10-year Bund yield, which currently stands at 2.57%, most of the surveyed capital market experts expect it to stand at between 2.3% and 2.8% over the next six months.