Pfandbriefe

June 01, 1996

A special report prepared by Frankfurter Hypothekenbank Centralboden

GERMANY

A EUROMONEY SURVEY - June 1996

AN ATTRACTIVE INVESTMENT

Increasingly - if belatedly - the international investment community is recognizing that the German Pfandbrief is an instrument which few institutions can afford to overlook. At the most basic level, the size of the market, with Dm1.258 trillion outstanding at the end of December 1995, means that the Pfandbrief now represents the third largest individual bond segment outside the US. Investors in the UK, for example, may be surprised to learn that the Pfandbrief market is now more than twice the size of the British government bond (Gilt) market. And while it naturally remains dwarfed by the US and Japanese government bond markets, the Pfandbrief sector is comfortably the largest fixed-income instrument in Germany, accounting for just under 35% of the Deutschmark bond market at the end of 1995. Federal government bonds, by contrast, account for just under 28% of the market.

YIELD AND SECURITY

Its size apart, the Pfandbrief has historically been an important component of German institutional investors' portfolios because it has offered an enviable combination of yield and security.

Yield has come in the form of a generous pick-up over Bunds, which has ranged from between 20 to 60 basis points, and which has traditionally reflected the relative illiquidity of the Pfandbrief market compared with the government bond sector.