Sentiment on the Pfandbrief market has brightened. The issuance climate has improved significantly, and is slightly positive for the first time since the Association of the German Pfandbrief Banks (vdp) began its Issuance Climate survey in December 2022

The data is gathered from the approximately 50 member institutions of the vdp, who account for 96% of the 400 billion euros in outstanding Pfandbrief. The overall assessment of the issuance climate takes into account not only current market activity and expectations for the next six months, but also the past six months. The survey looks at both Pfandbrief and unsecured bank bonds. The overall score for the issuance climate rose to +1 in June 2025, versus -14 in December 2024.

For unsecured bank bonds, the score climbed to +5 (–8), and for Pfandbrief improved to –1 (–18). The association publishes the Issuance Climate survey twice a year, indicating the sentiment indicator on a scale from –100 to +100 points. „Although an upward trend was already evident last year, the current increase was not foreseeable with such clarity,“ says Sascha Kullig, member of the vdp's executive board.

In addition to issuer activity, there has also been an improvement in investor demand for Pfandbrief. Unlike in many European covered bond markets, where issuance is down by 20 to 30% in some cases compared with the same period last year, domestic Pfandbrief banks issued 31.5 billion euros in new Pfandbrief in the first five months of this year. This represents an increase of 5% compared with the same period last year. The banks expect issuance of just under 50 billion euros for 2025. After deducting maturing bonds, this would result in net sales of just under 4 billion euros for this year. „We are very pleased to note the good demand for Pfandbrief in the current year, right across the maturity spectrum,“ says Kullig.

The Pfandbrief remains a key financing instrument for banks. „Especially in uncertain times, the Pfandbrief is always a reliable anchor,“ says Patrick Steeg, Managing Director in LBBW's Treasury department. In an environment of geopolitical tensions, the Pfandbrief is a safe and efficient refinancing solution.

The fact that the market opened this year mainly with unsecured bonds instead of Pfandbrief „was a strong signal of investor confidence in the financial strength of the banks,“ he adds. But he also believes that demand for Pfandbrief is strong, especially for long maturities. „A 20-year public Pfandbrief was even successfully placed,“ says Kullig. The strength of Pfandbrief is also remarkable given the high volatility.

Green issues have played a small but growing role in the Pfandbrief universe to date. Sustainable Pfandbrief already account for around a quarter of benchmark issues. By the end of 2024, the outstanding volume of sustainable Pfandbrief (green and social) had risen from 24.1 billion euros to 30.5 billion euros. „The product has established itself, even if it is not yet mainstream,“ says Kullig. However, in his view, the stricter requirements for green cover assets under the vdp minimum standards for green Pfandbrief, which have been in force since this year, are likely to make it more difficult for some institutions to find suitable cover assets.

Green refinancing is already strategically important for LBBW. „It broadens the investor base and improves pricing, especially for unsecured bonds,“ says Steeg. His bank refinances energy-efficient commercial buildings, project and export financing, among other things – „green, public and credit-insured.“ According to Steeg, the integration of the Berlin-Hyp portfolios will create one of the largest green asset pools among European commercial banks at LBBW.

While Pfandbrief and unsecured bonds are performing well, the trend in real estate financing is mixed. „The situation in the commercial sector remains challenging. We are not seeing a clear upward trend in demand for loans for commercial real estate. The level remains subdued, especially in the office segment,“ Kullig notes. „No crisis, but no upturn either. Geopolitical uncertainty is dampening the investment climate. The situation is clearer for residential real estate: demand is rising as interest rates fall, especially in the major cities.“

Despite subdued demand, however, there are no signs of relaxed lending standards in commercial real estate financing. „As far as creditworthiness criteria are concerned, strict legal requirements apply to Pfandbrief anyway. The mortgage lending value of commercial real estate is often only around 65% of the market value – of which only 60% may be refinanced via Pfandbrief,“ Kullig clarifies.

Compared to the recent high demand for Pfandbrief, experts are more cautious about the coming six months, as shown by the score of -5 points. A similar picture emerges with regard to the expected development of investor demand for unsecured bank bonds in the coming six months, which is rated at -20 points, down from +80 points. Here, too, the previously very strong investor demand for such securities is likely to have had a corresponding effect.