Jumbo issues

Traditional Pfandbriefe may be issued in either bearer or registered form, whereas Jumbos are only issuable as bearer bonds. For several years now, there has been a considerable shift in favour of the bearer paper, an indication of the growing share of Jumbo issues brought by the mortgages banks and their willingness to provide fungible bonds to their investors. Today, approximately 75% of all Pfandbriefe are bearer instruments. 

The Luxembourg market is still relatively small in comparison to its European cousins and has three Jumbo issues outstanding, as of January 2003, with a volume of 3.25 billion. With no issue with an individual volume of 3 billion, the Lettres de Gage are currently precluded from trading on the EuroCreditMTS platform. 

Jumbo issues generally trade with the euro overnight rate (EONIA), although the smaller-sized issues sometimes go special. The offered side in repo is dominated by investment funds and the mortgage bank issuers themselves. 

Jumbo Pfandbriefe are responsible for more than 80% of the issues traded on EuroCreditMTS. 

In addition, all Jumbo Pfandbriefe with a volume outstanding of 1.25 billion or greater and with a residual life of more than two years are greatly assisted by the market making pledge, given by 17 institutions, to provide a repo market in these issues. 

The Pfandbrief market is comprised of several types of issues in addition to the aforementioned traditional and Jumbo Pfandbriefe, there are Global issues and a variety of Structured issues and the latest enhancements to the product range by the way of Medium-Term Note (MTN) and Commercial Paper (CP) programs. 

As previously discussed, the major difference between traditional and Jumbo Pfandbriefe is the issue volume. Further distinctions are also evident in the issuing procedures of the two. Traditional Pfandbriefe are brought to the market in Tap form and individual series feature within one... 

By definition, Jumbo Pfandbriefe are always plain vanilla structures Jumbos are fixed-interest bullet bonds, the coupon on which is payable annually in arrears. The calculation of interest accrued is done uniformly using the actual/actual method in line with international practice. While this standardisation helps to enhance the transparency of the market, it inhibits the ability for these issues to be targets to an investor s specific needs and this is where the structured issues come into their own. 

One could also assume that the size of issue may be a determining factor in the curve spreads larger size would usually imply greater liquidity. The fact that volume has an almost negligible effect on spreads is testament to the market making obligations that are present in the Jumbo market. 

The first Jumbo-style issue was brought to the market in March 1999 and since then 12 more bonds have been lannched. However, despite the enthnsiastic start, only one bond was issued in 2000 and one of the existing issnes was tapped. 2001 showed more promise, with a total of five new issnes and the number of issuers increased from two to five. 

However, large facilities pose a greater risk— particularly with regard to catastrophic events. For example, a vessel that contains larger quantities of flammable or toxic materials poses a greater threat than two or three smaller vessels that have the same total capacity because it is not likely that all of the smaller vessels will experience the same accident at the same time. Therefore, the size of the release or fire is likely to be much greater. Indeed, the safety issues to do with the development of jumbo facilities were one of the reasons for the development of loss prevention systems (Davenport, 2006). 

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