Inquired: The second pbb benchmark Pfandbrief
Christian Walburg
Association of German Pfandbrief Banks
With the second Pfandbrief benchmark issue of the year, pbb sent a signal to the market before the summer break - what was decisive for the timing of the deal?
Götz Michl
Deutsche Pfandbriefbank AG
The summer break on the capital market is no longer as pronounced as in the past. Issues are basically marketable until mid-July and the first issuers return to the market just 4 weeks later. The choice of timing is more about spreading funding evenly over the course of the year. We roughly plan four Pfandbrief benchmarks, each with a volume of €500 million to €750 million per year. As you rightly say, we had one issue in the first quarter and now just the second. On the asset side, the loans are disbursed on an ongoing basis, so we also try to manage the liabilities in line with demand.
Christian Walburg
Association of German Pfandbrief Banks
Are you satisfied with the result? Is a maturity of just over three years sufficient for your house?
Götz Michl
Deutsche Pfandbriefbank AG
Indeed, the transaction generated good demand from investors quickly after the order book opened and trades now a few basis points tighter in the secondary market. The secondary market performance of new issues is an important criterion for the success of a transaction. In principle, it means that there is still interest in the bond after the initial placement in the primary market, i.e. more demand than supply. With the rise in interest rate, Pfandbriefe with a denomination of 1,000 euros also offer reail investors an attractive return. Our bond has a coupon of 3.625%, which is a nice rate for just over 3 years. Compared to the currently quite popular term deposits, the investor can also sell the Pfandbrief during the term and thus gets his money back at the current price even before final maturity.
The tenor thus matches investor demand very well, as the inverse yield curve -interest rates for short maturities are higher than for longer ones- implies that an attractive interest rate is paid for this short maturity. The tenor is also suitable for our maturity matched funding, as our customers currently tend to demand shorter loans. So the 3-year maturity is a good fit for investors and for us.
Christian Walburg
Association of German Pfandbrief Banks
How may I understand your point about retail investors? Are retail customers an important investor group for you?
Götz Michl
Deutsche Pfandbriefbank AG
For retail savings, Pfandbrief used to be a classic product. Due to the additional collateralization with real estate loans, Pfandbriefe have a good credit rating – the rating is usually in the top range of AAA or AA+, comparable with very good government bonds. However, Pfandbriefe offer a significantly higher yield than German government bonds. Older readers will certainly remember the concept of ward security.
However, in the years of the low-rate environment, which led to negative interest rates on the capital market, the Pfandbrief rightly disappeared from the portfolios of retail investors. Pfandbriefe with 0% return were of no interest to savers. With the rise in interest rates, this is now slowly changing again. Retail investors are generally returning to the market for fixed-income securities. The Pfandbrief market plays an important role here, as it is the largest segment after government bonds and, as already mentioned, is relatively safe.
Christian Walburg
Association of German Pfandbrief Banks
How important is ESG for commercial real estate clients and pbb?
Götz Michl
Deutsche Pfandbriefbank AG
In recent years, the sustainability of real estate has become an essential criterion for our customers – the property owners – and us, the lender. For a few years now, we have been scoring the financed properties in terms of their sustainability features. In addition to energy consumption, we look at such things as heating systems, connections to public transportation, recyclability of building materials, and the property’s path on the way of decarbonization by 2050. As a result, we are pleased with quite decent sustainability ratings for pbb and our contribution to the energy transition.