Pfandbrief yields with further upside?

After a prolonged slump around 2.5%, yields on 7- to 10-year Pfandbrief maturities climbed to around 3.1% between October and mid-December, reaching their highest level in 2025 (left-hand chart). The yield premium is driven primarily by the Bund-swap spread. Recently, the relative increase in Bund yields compared to swaps diminished the pick-up of Pfandbriefe over German government bonds (right chart). The expected increase in sovereign issuance volume suggests that Bunds will generally underperform vs. swaps in 2026. The resilience of Pfandbrief spreads could be tested at the beginning of the year by further increases in Bund yields. Market observers expect Pfandbrief yield pick-up over Bunds to remain low or decline slightly.