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Germany’s covered bond market is showing its first real signs of renewed confidence in nearly three years. According to the latest VdP Issuance Climate Survey, the overall sentiment among members of the Association of German Pfandbrief Banks (VdP) has turned marginally positive for the first time since the biannual survey began in late 2022. The overall score rose from –14 in December 2024 to +1 in June 2025, with a parallel improvement in unsecured bank bonds (from –8 to +5). Sentiment for Pfandbriefe alone remains slightly negative at –1, but this still marks a steep recovery from the previous reading of –18.
That shift in mood is mirrored in issuance volumes. While sales of covered bonds are down by as much as 30% in some European markets, VdP members issued €31.5 billion in new Pfandbriefe in the first five months of 2025—an increase of 5% year-on-year. Public-sector Pfandbriefe made up €8.7 billion of that total, up 31% from the same period in 2024. For the full year, VdP members expect gross issuance of just under €50 billion. Net of maturities, this would amount to approximately €4 billion in net new issuance.
Investor demand has returned, with sentiment scores of +65 and +89 for covered bonds—across all maturities—underpinning the market’s performance. “It is very encouraging that Pfandbriefe are in high demand across the entire maturity spectrum this year,” commented Sascha Kullig, board member at the VdP. Unsecured bank bonds are also seeing strong demand, with current scores of +57 and +80, although the outlook here is cooling. For Pfandbrief banks, these instruments offer a vital complement to secured issuance—broadening funding options and signalling investor confidence across risk tiers.
That caution is beginning to show elsewhere. The forecast for investor demand in the second half of 2025 has softened to –5, and the spread of Pfandbriefe over German government bonds is expected to narrow further—moving from a current score of –11 to –17. With the yield on 10-year Bunds currently at 2.57%, VdP members expect a range between 2.3% and 2.8% over the next six months. A persistently low yield premium may begin to dent appetite for Pfandbriefe relative to sovereign debt. The score for the asset swap spread level, though still negative at –40, has improved from –60 in the last survey.
A notable development is the rebound in lending. Financing volumes among VdP institutions rose to €36.1 billion in Q1 2025, up 24.5% compared with the same quarter last year. Expectations for future lending to be refinanced via the capital markets are similarly buoyant, with a score of +25. The forecast for oversubscription levels also remains positive at +16.
Even as the mood improves, the market’s rebalancing remains finely poised. Issuers and investors alike are navigating a narrow corridor of opportunity—underpinned by strong fundamentals in Germany but tempered by tight spreads, uncertain rate movements, and patchy demand in other European jurisdictions. For now, Pfandbriefe are back in favour—but the second half of the year will test whether that sentiment holds.