Heavy issuance activities meet strong investor demand

Among German Pfandbrief banks, DekaBank set the first pricing point of what may be regarded as the second half of the year on 17 August. The previous Pfandbrief transaction had been placed by DKB on 01 July, immediately before the onset of the seasonal market slowdown. The more than ample demand for Deka’s mortgage Pfandbrief provided an early indication of both the investment demand that had accumulated during the summer break and investors’ pronounced appetite for fresh primary market supply. DekaBank ultimately priced its new issue, which had a four-year maturity and a volume of EUR 250m, at a spread of ms +12bp. The strength of investor interest was particularly evident in a bid-to-cover ratio of 2.7x. At the same time, the transaction was placed without a new issue premium. Taken together, these metrics underline the market’s strong absorption capacity at the time of issuance. A similar dynamic was evident in the EUR benchmark segment during the first trading days following the summer break: All four Pfandbriefe issued since the reopening of the primary market attracted considerable investor interest, as reflected, among other factors, in their significantly oversubscribed order books. On average, the transactions achieved a bid-to-cover ratio of 2.2x.

The primary market therefore resumed seamlessly from the robust demand environment observed during the first half of the year. At the same time, the initially limited availability of new transactions further intensified competition among investors for fresh primary market supply. We attribute the strong demand, firstly, to a certain degree of pent-up investment pressure. During the issuance-free summer period, investors were faced with an absence of meaningful new supply for several weeks, leaving them with only limited opportunities to deploy available liquidity in the primary market. As issuance resumed, the new transactions consequently encountered a particularly receptive investor base. Secondly, the higher absolute yield levels offered by newly issued transactions are likely to have been a key factor behind the elevated investor interest. The upward shift in the yield curve across the short and intermediate maturity segments has noticeably enhanced the appeal of Pfandbriefe from an absolute yield perspective in recent months. For investors focused on high-quality covered bonds in particular, the changed interest rate environment is once again providing more attractive entry opportunities. The segment’s strong credit quality is currently combined with yield levels offering significantly higher running income than was available during earlier market phases. Against this backdrop, it comes as little surprise that issuers are currently focusing primarily on the intermediate maturity segment when selecting the tenors of their transactions. From an issuer’s perspective, this part of the curve provides balanced access to investor demand, while investors benefit from more attractive yield levels without having to assume excessively long interest rate exposure. The four Pfandbrief issuers active in the EUR benchmark segment followed precisely this pattern, with all institutions opting for maturities of between four and six years for their new issues. Overall, the reopening of the covered bond primary market following the summer break can therefore be regarded as highly successful. High oversubscription levels, tight pricing outcomes and, in some cases, the absence of new issue premiums demonstrate that Pfandbriefe continue to enjoy strong investor demand. At the same time, the concentration of issuance in the intermediate maturity segment shows that issuers are deliberately positioning their transactions in the area of the curve where higher absolute yield levels currently coincide with a particularly broad and receptive investor base.

We expect further new issuance of more than EUR 8bn in 2026

Since the end of the summer break, German issuers have already placed EUR benchmark transactions with an aggregate volume of EUR 3.75bn. As a result, issuance in August fell just EUR 50m short of the record set in the same month in 2023. In our view, this strong level of activity points to persistently high refinancing needs among German Pfandbrief issuers. By the end of August 2026, total new issuance by German Pfandbrief issuers in the EUR benchmark segment had reached EUR 26.6bn. We expect at least a further EUR 8bn of supply by year-end, which would bring full-year issuance to approx. EUR 35bn. Set against maturities of EUR 29.8bn, this would translate into net supply of around EUR 5.2bn and thus imply moderate growth in the outstanding volume of the Pfandbrief market. While admittedly ambitious, our forecast for the remainder of the year is supported by several factors: These include EUR 8.6bn of maturities falling due during the final four months of 2026, as well as the potential for issuers to engage in prefunding. The latter could become particularly relevant given that maturities of German Pfandbrief issuers in the EUR benchmark segment will rise to more than EUR 38bn in 2027. Should an attractive issuance window emerge between September and November, some issuers are therefore likely to take advantage of favourable market conditions and bring forward part of their refinancing requirements for the coming year. Such activity would provide additional support for issuance volumes during the remainder of 2026 and increase the likelihood of our full-year forecast being met.

Conclusion and outlook

Overall, German Pfandbrief issuers have made a dynamic return to the primary market following the summer break, supported by strong and broadly based investor demand. We expect issuance activity to remain buoyant through year-end, with prefunding likely to become an increasingly important market driver in late October and/or November. The extent to which issuers bring forward their 2027 refinancing requirements will, however, depend largely on prevailing primary market conditions and the capacity of investors to absorb additional supply at attractive pricing levels.