Jumbo Pfandbrief

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... 

EXHIBIT 7.2 5-Year/lO-Year Jumbo Pfandbrief/Bund Spread... 

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. 

Aside from the traditional and Jumbo Pfandbriefe, the mortgage banks also offer structured Pfandbriefe for those investors that seek a more individually tailored product to suit their portfolios. These products are structured to particularly suit the investors interest rate expectations and their desired risk/return profiles. Structured Pfandbriefe allow the mortgage banks to combine the asset quality of the Pfandbrief with the advantages offered by derivatives. 

And so the Jumbo Pfandbrief contract had failed at its first major hurdle, and on 1 March 1999 Eurex suspended trading in both the Deutschmark- and euro-denominated contracts. It did however indicate at the time, that the door remained open for a possible relaunch of the contract at a future date. 

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. 

As at the start of 2003, no moves have be made to reinstate the Jumbo contract and presently the only way to effectively hedge ones exposure to the Pfandbrief market is via the swaps market, although many still favour the peripheral government bond route, particularly for trades conducted on a short-term horizon. 

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