Europe’s real estate firms find funding respite but refinancing challenge looms; covered bonds provide stability in turbulent times; non-prime office segment faces rising vacancy rates; what can Frederick the Great tell us about today’s capital markets?

We are constructive on European covered bond ratings. European banks entered 2025 in solid shape, while a stable European economy will support rating levels. But investors will need to remain vigilant for risks that could catch the market off guard.

Homeowners in some European markets prefer floating-rate mortgages while others prefer longer-dated fixed interest rates. Given that borrowing costs are all linked to the same ECB rates, this is somewhat counter intuitive.

With sovereign credit quality reflecting fiscal and economic challenges, the Draghi report offered valuable insights into how to address some structural issues facing the euro area. But the report was notably silent on the contribution of covered bonds.

In 1769, Frederick the Great, King of Prussia, introduced the legal basis for an instrument that developed into Germany’s Pfandbrief, the forerunner of all covered bonds. How would he have reacted to the Draghi report on European competitiveness?

Efforts to address remaining items in the Covered Bond Directive continue. While the Directive has brought many benefits, there is still room for improvement, particularly for European Secured Notes, which could offer both banks and SMEs funding benefits.

Green and social covered bond issuance hit USD13.4bn in the first seven months of the year, representing approximately one in 10 new issues. But there is pressure to enforce consistent and standardised ESG disclosures related to cover pools.

Scope has published the final version of its covered bond rating methodology. The methodology update, which follows a call for comments released on 10 May 2024, has no rating impact. Scope has not received any comments.

The introduction by Poland’s financial supervisory authority (KNF) of a long-term finance ratio for residential mortgages could provide a boost to Poland’s hibernating covered bond market. Green covered bonds could become the instrument of choice.

This year will not set any records for investor-placed covered bonds. After moderate-to-strong activity for most of the year, issuance in June was the slowest in over 10 years. But we still believe our projected volume of EUR 170bn for 2024 is feasible.