FAQ

Most recent Questions

1. How are the current developments in the international capital markets affecting the German Government securities market?

Investors’ asset allocation during the recent financial crisis has underscored the degree to which German Government securities are regarded as one of the world’s safest forms of investment. That confidence has also been reflected in the spread performance of German Government bonds relative to the other most actively traded government securities in Europe. Even with a higher issuance volume for German Government securities the cornerstones of the issuer’s issuance policy continue to be liquidity, transparency and reliability.

2. Are a budget deficit and its refinancing likely to affect issuance volumes, structures and end maturities?

Issuance volume will remain at the current level in the mid term. The long-term goal continues to be a balanced budget. Changes in the final maturity structure will only be undertaken over the long term in connection with changes in the debt portfolio that are unrelated to  current developments. The overwhelming bulk of the debt portfolio consists of maturities of over 12 months. The higher short-term financing has only increased the proportion of Bubills in the debt portfolio from 4% to about 10%.

3. Over what time horizon is higher Bubill issuance to be expected?

The growth in supply of Bubills in 2009 has been a direct response by the Federal Government to rising demand for shorter dated issuance. As a result, a full curve of Treasury discount paper extending up to 12 months was built up in a short time.  No decisions have yet been made on how long the refinancing of outstanding Bubills will be continued. The issuer has a full spectrum of highly liquid German Government securities in circulation along the entire euro yield curve. Any refinancing can be conducted, if necessary, in the maturity segment where demand is strongest. The decisive factor for the issuer in its choice of financing instrument is to remain flexible, while safeguarding the key objective underlying its issuance policy, which is the maintenance of liquidity, transparency and reliability.

4. How will the duration of the debt portfolio be affected by adjustments in the issuance calendar?

Changes in the debt portfolio will continue to be made within the framework of the issuer’s long-term cost, risk and diversification preferences. The objective is to achieve a predefined target portfolio. Changes in the issuance calendar can be balanced out by using interest rate swaps.

Further Information 4.:

5. Do government-guaranteed bank bonds have consequences for the Federal Government’s standard financing instruments?

Although Government-guaranteed bank bonds are an asset class with considerable expansion potential in terms of volume and liquidity, it will only be possible to compare them with the market for German Government securities over the long term. Investment decisions are based on various criteria and are therefore not directly comparable with investment in German Government securities. The Federal Government’s issuance policy will therefore continue to be based on the depth and demand in the market for its own securities.

 

General Questions

1. What are the criteria for inclusion in the “Bund Issues Auction Group”?

Credit institutions, investment and trading firms that are domiciled in the European Union and fulfil the requirements specified in the German Banking Act (KWG) can be members of the Auction Group. Technical requirements are that members hold a custody account with Clearstream Banking Frankfurt (CBF) and a euro account with the Bundesbank. To remain a member of the Auction Group a credit institution must subscribe to at least 0.05% of the total issuance allotted at the auctions in a calendar year weighted according to maturity. There are no other requirements made of the members of the Auction Group.

2. How far in advance are issuance plans announced?

At the end of each year the Federal Government publishes a press release outlining its issuance calendar for the following year to inform market participants about its planned issuing of Bubills, Schaetze, Bobls and Bunds. The calendar contains a detailed plan for the first quarter,  announcing the date of issue, the maturity, and the nominal issue volume targeted by the Federal Government for each individual issue due to be launched within the quarter. It also announces a schedule of individual issues for the second to fourth quarters, advising market participants about the types of security and the nominal volumes planned, but only indicating the month, rather than the exact date, of issuance or maturity. The missing details of planned issuance for the following quarter are released in the next calendar, which is published in the last third of the month before the start of the respective quarter.
The Federal Government is the only issuer in the world to provide such a detailed preview of its primary market plans, giving investors plenty of time to prepare for forthcoming new issues. Its track record of adhering  as closely as possible to its  announced issuance plan makes the Federal Government’s transparent and reliable issuance policy an important factor contributing to its t benchmark status in the euro zone.

3. How are the issuing activities spread over the respective maturity categories (in percentage terms)?

In the issuance calendar for 2010 the proportion of money market instruments (Bubills) with maturities of three, six, nine and twelve months is 40%. The weightings for capital market instruments are: 22% for Federal Treasury notes (Schaetze), 17% for five-year Federal notes (Bobls), 18% for ten-year Federal bonds and 3.5% for thirty-year Federal bonds (Bunds).

The issuing activities over recent years show a shift towards money market paper (see chart). However, this class of instrument still only accounts for about 10% of the Federal Government’s total debt portfolio.

Inflation Linked German Government Securities

1. In which way does the redemption amount and coupon calculation of inflation linked German government bonds react to deflation?

The nominal value of a inflation linked security is adjusted by the development of the inflation index (European HICP ex tobacco). At maturity at least the original nominal value will be paid back.

The real coupon is always paid on basis of the capital, indexed by the inflation. In case of deflation the indexation coefficient could quote below 1. Therefore the nominal amount could theoretically quote below 100 during the life time of the bond. Regarding to the interest payment this means that a coupon payment amount could be below the coupon related to the original nominal amount (100).

2. Could the coupon of an inflation linked German government security be 0 or negative?

The coupon is always fixed and defined in the terms and conditions of the individual securities. The interest payment could vary based on the fact that the coupon is paid on the inflation indexed capital. The calculation of the interest amount stems from nominal amount x indexation-coefficient x coupon. The indexation-coefficient results from inflation index at Tn / inflation index at To. For an interest payment of 0 or negative the indexation-coefficient would need to be 0 or negative. Though the inflation index at time To is fixed, variable is only the inflation index at time Tn. And this is the value of the underlying basket of goods where the inflation index is calculated from, which always has to be >0. Therefore the indexation-coefficient and the interest payment can not be below o or negative.

3. How is the indexation-coefficient fort he first trading days in March of a year calculated even when the publication of the price index for January by Eurostat is delayed?

An alternative index is calculated instead of the official price index (HICP ex tobacco) for January published by Eurostat. The alternative index results from the average inflation of the previous year (details please see terms and conditions of the individual securities). Based on the alternative index the index-coefficients for the first days of March are calculated. After publication of the official index the missing indexation-coefficents are calculated and published. The indexation-coefficients calculated based on the alternative index stay valid.