RT Journal Article
SR Electronic
T1 Agency Ratings in the Pfandbrief Market
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 239
OP 243
DO 10.3905/jpm.2004.239
VO 30
IS 4
A1 Ludovic Breger
A1 Darren Stovel
YR 2004
UL https://pm-research.com/content/30/4/239.abstract
AB Pfandbriefe are bond issues issued by German mortgage banks. Agency ratings do not play a significant role in the risk profile of jumbo Pfandbriefe, one type of Pfandbriefe, so it might be that the withdrawal of government guarantees and the prospect of agency rating downgrades do not mean more risk in the highly standardized jumbo market, with its many investor protections. Ratings do appear to have more relevance for the basic Pfandbriefe, where non-standardized issues, lower liquidity, and higher trading costs pose greater challenges for investors who wish to adjust their holdings quickly. There are systematic and sometimes large differences between Pfandbriefe and jumbo Pfandbriefe. Spread levels are clearly more homogeneous for jumbos than for Pfandbriefe. The higher liquidity and standardization of jumbo issues also results in a stronger benchmark where both issuer idiosyncrasies and risk are largely reduced. The risk modeling implications are clear; the two asset types should be treated separately.