Federal bond

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A German federal bond ( Bund for short ) is a bond issued by the Federal Republic of Germany as a government bond . In addition to short-term borrowing from banks , federal bonds and other federal securities are one way the federal government can finance its government spending if necessary .

A federal bond has a term of around 10 or 30 years when it is issued, making it the longest-running federal security. In 2020, due to the significantly higher loan requirements, Bunds with a term of 7 and 15 years were issued for the first time. Federal bonds have a fixed annual interest rate ( coupon ). The listing is done as with all interest securities as a percentage of the nominal value (nominal value). At the end of the term, Bunds are repaid at full face value. The currency is usually the euro , even though the federal government issued bonds in 2005 and 2009, the interest and repayments of which were made in US dollars .

history

The forerunners of the federal bonds were the Reich bonds. When the funds from the French reparations fund had been used up in 1876, the first Reich loan with a volume of 16 million marks was issued in accordance with the decree of June 14, 1877 (“regarding the taking up of a loan”). The first federal bond came on December 11, 1952; her bond volume was 500 million DM. Originally a distinction between two types of bonds, the Schuldverschreibungs bond and treasury instruction bond. The latter had a shorter term and did not contain the federal government's right to terminate debtors. Emissions to 1963 contained a semi-annual interest payment, since 1971, all federal bonds have an annual interest payment. In January 1969, the federal government introduced the federal treasury bills as a risk-free alternative to federal bonds, which should serve more to build wealth for the population ("people's obligation"). Since June 1972 there have been no more effective pieces, as bonds are now in circulation as stock rights (debt register claims). In 1987 the federal government renamed the medium-term notes to treasury notes. The minimum nominal amount of federal bonds was raised from 100 DM to 1000 DM in 1993 and reduced to 0.01 euros in 1999.

In February 1997, a federal bond with a variable interest rate came onto the market for the first time . The financial innovation of the strippable federal bond first appeared in July 1997. In 2005, the first foreign currency bond was issued in US dollars. Since 2006, the federal government has also issued inflation-linked bonds , the interest and repayments of which are linked to the inflation rate in the euro area. Since May 2020, 7- and 15-year federal bonds have been supplementing the previous 10- and 30-year range of maturities; the first green federal bond is to be issued in September, which represents expenditure in the federal budget for climate and environmental protection.

Legal issues

As an issuer, the federal government may not issue federal bonds at will. Rather, the issuance of federal bonds depends on approval under budget law. According to Section 18 (2 ) of the Federal Budget Code , the Budget Act determines the amount up to which the Federal Ministry of Finance may take out loans . According to § 18.1 BHO, borrowing is limited to the debt brake set out in Art. 115 GG .

Issuance process and trading

Federal bonds are generally issued in an auction ("tender procedure"). Only banks that belong to the so-called Bund Issues bidding group are entitled to purchase Bunds in the auction. Other credit institutions, professional or private investors can instruct banks in the bidding group to submit bids. If a bond is issued for the first time in the auction, it is called a new issue or initial issue. In the case of federal bonds, further auctions of the same bond follow a few weeks and months later, increasing the volume in circulation. These are called top-ups.

Immediately after the auction, the introduction to exchange trading takes place. There, federal bonds can be bought and sold every trading day at banks, savings banks or credit unions for their entire term . The Bundesbank , as the market operator on the German stock exchanges, ensures liquid trading in government bonds. This means that even larger stocks can be traded within a short time without the price changing significantly. Since buying and selling always take place at the current market price , investors with Bunds can not only achieve secure annual interest income, but also price gains or losses. Technically, federal bonds can be traded as book- entry securities through entry in the federal debt register , whereby the investor receives a co-ownership share in the collective securities portfolio in accordance with Section 6 (1) DepG .

There have only been very few deviations from the auction process so far, most recently with the first issue of a 15-year federal bond on May 6, 2020 and the increase in a 30-year federal bond on June 10, 2020. Both issues were carried out with bank syndicates.

Federal bonds can be kept in any custody account at a bank, savings bank or credit union , as well as all federal bonds issued up to August 21, 2012 in an individual debt register account with the Federal Republic of Germany - Finanzagentur GmbH . It is not possible to buy federal bonds through the finance agency.

Bunds that were previously issued on New Year's Eve are also known as New Year's Eve bonds.

10-year federal bonds

A new issue (initial issue) of 10-year federal bonds with a volume of most recently 5 billion euros is followed in the following months by so-called top-ups of the same federal bond (same securities identification number ) in the same or lower amount. A 10-year federal bond can achieve a total volume of well over 20 billion euros through these increases, which are also carried out as part of auctions. Then the next new issue follows. For example, new 'ten-year-olds' were issued three times a year in 2014 and twice a year since 2015. After several increases, 23 billion euros of the two 2015 new issues are in circulation today, 25 and 26 billion euros of the 2016 new issues. In June 2016, the yield on ten-year German government bonds fell below zero to minus 0.003 percent for the first time and has now fluctuated (as of September 2019) between −0.55% and −0.75%. The share of 10-year federal bonds in the annual federal issuance volume is expected to reach around 33 percent in 2020.

30-year federal bonds

New issues of 30-year government bonds take place on average every two years and with comparatively lower volumes of between 2 and 4 billion euros. Until 2015, only the most recently issued new issue was regularly increased again and again. Since 2016, there have also been increases in 30-year Bunds that were newly issued four or six years earlier. In 2017 and 2018, for example, in addition to the new 30-year Bund issued in 2017, older bonds from 2012 and 2014 were also increased. In mid-2020, the thirty-year federal bond from 2012 has a volume of 28.5 billion euros; the federal bond from 2014 30.5 billion euros. The so far last new issue of a 'thirty year old' took place on August 21, 2019 with a volume of 2 billion euros. The proportion of 30-year federal bonds in the annual federal issuance volume is expected to be around 12 percent in 2020.

Stripping

Since July 4, 1997, certain federal bonds can also be stripped . This means that the entitlement to regular interest payments resulting from the bond is separated from the entitlement to repayment of the nominal value at the end of the term. You then get a capital strip and several interest strips, each as zero coupon bonds . So that a large trading volume is achieved in the individual strips, coupons from different bonds, but with the same maturity date, are grouped under a security identification number .

meaning

Economically

For the federal government, federal bonds with a current volume of around 750 billion euros are not only the most long-term, but also the most important financing instrument . At the end of 2019, the share of 10- and 30-year federal bonds in all federal securities in circulation was exactly 757.5 billion euros. This corresponds to about 67 percent of all federal loans and debts. In 2019, they accounted for around a third of the federal government's total issue volume (new borrowing).

Delivery obligations from futures transactions with the Bund future traded on Eurex can only be fulfilled with ten-year Bunds. Since the Bund future of the world's most important because of the high volume of trade exchange contracts counts in fixed income, the ten-year German government bonds (as underlying acted accordingly intensive). The Buxl future, which is also traded on Eurex, relates to thirty-year Bunds, but is much less significant.

As a guide

The yield on the current ten-year federal bond serves as an important benchmark (usually the lower limit) for long-term interest-bearing investments or loans in the euro area. The advantageousness of a financial investment, for example in a corporate bond or a bond from another euro country, is assessed on the basis of the difference in yield to the federal bond. Federal bonds owe this reference status in particular to their high liquidity (good tradability), but also to the very good creditworthiness of their issuer, the Federal Republic of Germany.

If you enter the yields of all federal bonds sorted according to remaining maturity in a diagram, you get the federal curve . This yield curve - a curve or, more precisely, just individual points that are connected to form a route , for example - is rising in an interest rate environment that is called “normal”, since the returns for longer terms are usually higher than for shorter terms.

Ten-year federal bonds are also included in the German Rentenindex (REX) calculated by Deutsche Börse . The prices of fictitious, ideal-typical government bonds are determined on the basis of their price development. The REX is thus an indicator for the performance of German government bonds.

As a source of income

In order to determine the current yield , the Bundesbank takes into account other government bonds, in particular federal securities and government bonds. The current yield thus provides information about the interest rate level and interest rate development in a country.

By the low interest rate policy of the European Central Bank (ECB), yields have shrunk and sometimes even become negative. German government bonds, formerly popular as risk-free yield bonds, hardly generate any income. The statement by the Financial Times in May 2015 that risk-free yield bonds had become return-free risks ( risk-free returns ) is a journalistic exaggeration because the issuer risk of the federal government as a debtor is still rated as very low.

safety

Federal bonds are exclusively uncovered bonds, so that only the creditworthiness of the issuing federal government is decisive. According to Section 1807, Paragraph 1, No. 4 of the German Civil Code ( BGB), they belong to the ward money , so - like all federal securities - they are custodial and cover funds . Bunds have a lower yield than Pfandbriefe or other bonds with a comparable structure because Bunds are given the best AAA rating by rating agencies . This in turn makes Bunds the reference value for yield differences of other bonds (“credit spreads”, for example “jumbo bund spread”). Even the cover and the statutory protection of the Pfandbrief are viewed by rating agencies as insufficient to generally equate the creditworthiness of Pfandbriefe with that of Bunds.

Risks

With Bunds, there are four major risks for investors , which can also occur cumulatively.

These risks lead to the classification of a bond in a certain risk class .

See also

Web links

Individual evidence

  1. ↑ Issue calendar for federal securities 2nd quarter 2020 , press release as PDF (284 kB), accessed on July 8, 2020.
  2. ↑ Foreign currency bonds of the federal government , website of the finance agency, accessed on July 24, 2015
  3. ↑ Die Zeit of November 27, 1952, The first federal bond at the start , accessed on July 27, 2015
  4. ↑ Issue Conditions for Federal Securities in the 1999 version , Issue Conditions as PDF (28 kB), accessed on July 8, 2020.
  5. ↑ Inflation-indexed federal securities , website of the Finance Agency, accessed on July 24, 2015
  6. ↑ Website of the green federal securities , accessed on July 8, 2020.
  7. ↑ Federal tender procedure , website of the Finance Agency, accessed on July 24, 2015.
  8. ↑ a b c d e f Federal bonds (Bunds). Federal Republic of Germany - Finanzagentur GmbH, accessed on July 7, 2020 .
  9. ↑ Functionality and safekeeping options for federal bonds , website of the Finance Agency, accessed on July 24, 2015.
  10. ↑ Jürgen Krumnow, Ludwig Gramlich (ed.): Gabler Bank Lexicon: Bank - Stock Exchange - Financing. Springer-Verlag 2013, ISBN 3-322-94788-2 , p. 1174.
  11. ↑ ZEIT ONLINE, dpa, Reuters, tst: "If you buy ten-year bonds, you pay on it" Die Zeit from June 14, 2016
  12. ↑ Archive of auction results for federal securities , auction overview since 2005 as Excel (268 kB), accessed on July 8, 2020.
  13. ↑ Issue calendar for federal securities 4th quarter 2017 , press release as PDF (119 kB), accessed on October 19, 2017.
  14. ↑ Description of the stripping process , Bundesbank website, accessed on July 24, 2015.
  15. ↑ Bond stripping in the 'e-FORUM: Federal securities - April 2009' Investor magazine of the finance agency (PDF 241 kB), page 7f, accessed on July 24, 2015
  16. ↑ Interest rate derivatives on government bonds , Eurex website, accessed on July 27, 2015.
  17. ↑ Federal bonds in the 'e-FORUM: Federal securities - December 2011' , investor magazine of the finance agency (PDF, 494 kB), accessed on July 27, 2015.
  18. ↑ Definition of REX , website of Deutsche Börse, accessed on July 27, 2015.
  19. ↑ Definition of current yield , website of the Bundesbank, accessed on July 27, 2015.
  20. ^ Financial Times. May 22, 2015, p. 24.
  21. ^ Robert Sünderhauf, Assessment of the Default Risk of German Mortgage Bank Pfandbriefe , 2006, p. 6 f.