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Jumbos is also no longer an exclusively German practice – a
10-year €1bn Jumbo covered bond issued in February by
Austria’s Kommunalkredit was bought by investors in France,
Spain, the Benelux countries, Scandinavia, China and South
Korea, as well as Austria and Germany.
The attraction of Jumbo covered-bonds to foreign banks is
easy to understand. On the supply side the bonds are popular
with banks because they allow issuers with AA or A credit
ratings to create instruments that typically enjoy ratings of
AAA – making raising funds cheaper. On the buy side, the
bonds have both the liquidity and size that are necessary to
attract large investors. They also have the key advantage for
banks of requiring only half the capital coverage of a bond
issued directly by banks that issue mortgages. The reason for
this, say regulators, is because the bonds are secured against
stable long-term loans, making them particularly safe –
though critics suggest that the narrow asset base means the
bonds are not as safe as many think.
The financial advantages of Pfandbriefe, coupled with
the new found success of the Jumbo format, led, in 1999, to
the first non-German issuance of covered-bonds when
Spain launched its cédulas hipotecarias and France issued
obligations foncières. More recently they have been joined
by Austria, the UK (which in 2003 became the first country
The Pfandbrief
In 2005 the Jumbo Pfandbrief marks its 10th anniversary.
For a decade, the Jumbo Pfandbrief has been setting the standard in the international fixed income market. From a
standing start, the Jumbo Pfandbrief has grown to a market of 400 billion euros and an average issue size in excess
of 1.7 billion euros. The groundbreaking Jumbo segment has spurred the development of the pan-European Jumbo
covered bond market worth nearly 600 billion euros.
The Jumbo Pfandbrief: quality, liquidity and a yield pick-up.
Find out what investors should know about the Pfandbrief � � � www.pfandbrief.org
FTSE GLOBAL MARKETS • JULY/AUGUST 2005
to issue a covered-bond without specific legislative
backing), Ireland, and in March 2005, Italy’s first Jumbo
covered-bond – albeit one sponsored by the state rather
than a private bank.
The ranks of Jumbo covered-bonds are expected to be
further swelled by issues from Sweden, Norway and perhaps
Portugal, all which could make their debut later this year, and,
at a later date, Finland, Poland and Hungary.“The coveredbond
markets have expanded into almost all the European
countries, but although legislation has been implemented,
covered-bonds have not actually been issued in all areas,”
says Christof Juetten, executive director, responsible for
covered-bond Origination at Goldman Sachs International.
For the time being the big three markets of Germany,
Spain and France, collectively account for about 90% of all
Jumbo covered-bond issuance. That high-rollers club may
have to expand in the coming years, says Juetten.“We expect
to see most growth from Italy. It is the last, large European
economy which has yet to introduce covered-bonds on a
significant scale.” Doomsayers had predicted that
European-wide issuance of Jumbos would lead to thinner
demand. In fact the opposite has occurred. Investors in new
issuing countries have more than met their own domestic
demand and begun to search in other markets.
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