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December 2008 | ifr special report | 7 PFANDBRIEFE ROUNDTABLE


Joerg Huber , LBBW; Louis Hagen, The Association of German Pfandbrief Banks, Horst Bertram, BayernLB; Bernd Volk, Deutsche Bank; Olaf Pimper, Dresdner Bank Treasury Department, Fritz Engelhard, Barclays Capital; Laurent Viteau, EuroMTS; Steffen Dahmer, JP Morgan; Rachelle Horn, IFR; Solomon Teague, IFR


investments: I'm still sure that Pfandbriefe are 100% safe and will be paid back in full, but I also know it doesn't make much sense to go to the secondary market now for a price, because there is no clarity and ultimately the prices don’t make sense. They are just irrational, for now.


IFR: Have we seen any flows go through EuroMTS lately?


Viteau : If you talk about covered bonds and the interdealer market, there has been hardly any flow. There was a bit of pick up late August and early September, but then it basically died.


If you look on the client side, at the


investor, yes, there have been some flows. They came late in the year, but there have been some flows.


Engelhard : But there is a major discrepancy between what the rule was last year or early this year and what it is now. The secondary market has become much more highly concentrated: I would guess that today maybe 90% of the flows are done by 10% of the counterparties. All the small and mid sized counterparties are on the sidelines, in terms of there being no balance sheet commitment there anymore. This is obviously concentrating the flows in some ways.


Pimper : So the only way to trade is when you have a position in a particular security. It doesn't make sense to call any counter-





As an investor, I’m very happy with


my investments: I’m still sure that Pfandbriefe are 100% safe and will be paid back in full, but I also know it doesn’t make much sense to go to the secondary market now for a price, because there is no clarity and ultimately the prices don’t make sense.


party and ask them for an outright price. If any trading is possible then it is because a trader is axed. Then you don't increase your balance sheet, you are just switching if there are some nice opportunities in terms of spreads. Sometimes I'm left with the feeling that we are back into those old times where you have a huge bid offer spread on small sizes: this is totally different to what we are used to when the market was working, when we had big tickets with very small bid offers.





Volk : This is the main problem for the Pfandbrief at the moment. It doesn't help Pfandbriefe that other markets have the same problems.


I see the change in business models and what happened to some issuers, but there are a lot of issuers where investors have no fear at all, they completely trust the product. But as long as the market is like it is, for whatever reason, the situation is unlikely to change.


Engelhard: But that's creating tremendous opportunities, of course. Particularly in the short end area, many of the bonds are trading on a cash basis, so in the very short term there are many opportunities for investors in the secondary markets.


Volk : These cheap offers we saw in the Pfandbrief market a few weeks or a month ago are gone. A lot of investors are trying to find very short dated Pfandbrief with a very high yield, but they are no longer available.


Dahmer : Olaf has highlighted it: you see trading with Axes, you see a lot of switch operations to reduce your repo costs. People who are cash rich would have invested in 10-year maturities in 2006 or 2007, now they are staying in cash or buying something that matures in two months time. It is a big change down to the missing liquidity. You don’t want to have a maturity that is longer than your view. That is fair enough, but it doesn’t help covered bonds.


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