Municipal bonds (also municipal bonds or Public Pfandbriefe ) are bonds that of Pfandbrief Banks issued are and refinancing of municipal loans serve. Municipal bonds are therefore among the safest investments , as local authorities enjoy the highest creditworthiness as borrowers . In addition, they are legally safe in accordance with (1) BGB .
The Pfandbrief business is a banking business in accordance with (1) No. 1a KWG , which may only be operated by credit institutions with a banking license . According to (1) No. 2 PfandBG , the Pfandbrief banks' Pfandbrief business consists, among other things, of the “issuance of covered bonds on the basis of claims acquired against government agencies under the name of municipal bonds, municipal bonds or public Pfandbriefe.” Claims against government agencies are municipal loans where the federal government , the federal states , municipal associations , municipalities or institutions (with institutional burden and guarantor liability ) and corporations under public law are the borrowers . All other loans that are guaranteed by these borrowers ( surety / guarantee , joint and several liability ) can also be refinanced through municipal bonds. In Paragraph 1, Sentence of the PfandBG, every claim recognized in writing by the public sector as free of objection is admitted as cover. Under "Pfandbrief business" in the category "Public Pfandbriefe" is to be understood according to § 1 Para. 1 Clause 2 No. 2 PfandBG the issue of covered bonds on the basis of acquired claims against government agencies under the name of municipal bonds, municipal bonds or public Pfandbriefe. According to Section 1 PfandBG, municipal bonds enjoy designation protection; the designation as “Public Pfandbriefe” has been permissible since January 1991 and has now become the norm.
Debtor of municipal bonds are issuing mortgage banks, mortgage banks , mortgage lenders and mixed public mortgage banks . This distinguishes the municipal bonds from the municipal bonds , in which the debtor is directly the issuing regional authority . These are covered municipal bonds, as they are matched by congruent coverage by municipal loans. The proceeds from the bonds may only be used very specifically for municipal loans, interest-hedging derivatives and other transactions mentioned in PfandBG. Municipal loans are considered to be particularly secure loans because of the tax power of their debtors and their inability to bankrupt . This is also confirmed in banking supervisory law , since they are given a risk weight of 0% according to Art. 114 Para. 4 and Art. 115 Capital Adequacy Ordinance (CRR) , so they do not have to be backed by the issuing banks' own funds . The lack of capital adequacy enables a lower interest rate or a lower credit margin than with other loans. This also has an impact on the nominal interest rate on municipal bonds, the interest rate of which is generally lower than that of corporate bonds, for example . Because all EU member states and their subordinate local authorities are also affected by these regulations , municipal loans to this European group of borrowers through to foreign government bonds (from EU member states) are also favored by this regulation. The minimum face value of a municipal bond is 50 euros, and their terms are at least 10 years or more. Municipal bonds are mostly intended as bearer bonds , so that this highest form of fungibility enables an informal transfer of the bonds to the buyer. You can, however, also as name or order bonds be designed.
While in December 1948 of 32.5 million DM Pfandbriefe in circulation only 4 million DM were accounted for by municipal bonds, their share had risen to 20 million in December 1949. In June 1949, the Bank deutscher Länder decided to set the lending limit for Pfandbriefe and municipal bonds at 75%. Since 1951, the importance of municipal bonds on the German bond market has grown steadily. From the in § 795 BGB a. F. intended approval of the issuance of bearer bonds by the federal government was used for the first time in July 1965 through a license freeze, which was directed primarily against municipal bonds. As early as September 1965, the permit freeze was relaxed.
"The ... great importance of municipal bonds ... is the consequence of the increasing indirect use of the bond market by the public sector, because the equivalent value of municipal bonds flows to domestic public budgets as 'municipal loans'". The municipal bond ultimately became the most important type of bond on the German capital market , because the volume of municipal bonds in circulation was higher than the Pfandbrief volume for the first time in August 1970. This has made the municipal bond the most important security on the German bond market. This was mainly due to the expansive financing needs of municipalities, states and the federal government. In 1990 their market share was 53%. In 2015, public authorities, regional authorities and central states each had a 30% share of the total cover pool as borrowers.
- The investor is exposed to a creditor risk because the bond debtor will not be able to provide interest and / or repayment in whole or in part in the future . This creditor risk is lower in the case of covered bonds (“covered bonds” such as Pfandbriefe and municipal bonds), but not completely eliminated.
- Furthermore, there is a risk of interest rate changes for the investor with fixed-income securities because the nominal interest rate can fall below the current interest rate on the bond market during the term of the bond .
- In the case of foreign currency bonds , the investor may face a price risk if the exchange rate falls below the original purchase price during the term of the bond.
- The inflation risk is the uncertainty about the real size of future payments. It is to be assessed separately from the interest rate risk, because the Fisher effect can only be empirically proven in the long term. The risk of inflation can be eliminated by purchasing inflation-linked bonds .
These risks lead to the classification of a bond in a certain risk class .
The CRR apply in all EU member states , so that the market for municipal bonds is quite homogeneous across Europe. In terms of volume in circulation, the market for German Pfandbriefe is the largest segment within the global covered bond market with a share of 16% in December 2014, followed by Denmark (with a market share of 15%), France (13%) and Spain (12th %) and Sweden (8%), whereby in Germany the share of registered Pfandbriefe is now 50%.
In the USA, the municipalities obtain their loans directly on the capital market through the “municipal bonds” they issue, while municipal loans from banks to municipalities are rather untypical.
- Notes on the facts of the Pfandbrief business , BaFin, information sheet of January 6, 2009.
- Bank Lexicon: Concise dictionary for banking and savings banks , Verlag Dr. Th. Gabler GmbH, 1978, p. 922.
- Hermann May, Handbuch zur Wirtschaftsbildung , 2008, p. 358.
- Monthly reports of the Bank deutscher Länder, September 1950, p. 80
- Horst Schwedes / Karl Krahn, Der Bund am Kapitalmarkt , 1972, p. 63.
- Deutsche Bundesbank , Annual Report for 1969 , p. 65
- Klaus H. Flachmann, Siegeszug der Kommunalobligation , in: Journal for the entire credit system, Volume 23, 1970, p. 1142 f.
- Robert Lawrence Kuhn, International Finance and Investing , Volume 6, 1990, p. 249
- DG Hyp, The German Pfandbrief Market 2015/2016 , September 2015, p. 38.
- DG Hyp, The German Pfandbrief Market 2015/2016 , September 2015, p. 6.