Portfolio Management

From Issuance Strategy to Portfolio Approach

In short, the management of the Federal Government’s debt portfolio can be summarized as follows:

  • structuring the annual issuance calendar
  • calculating and determining a target portfolio according to the costs and risk preferences of the issuer
  • complementary use of interest rate swaps in order to achieve the favored fixed interest structure of the target portfolio
  • achieving annual interest cost savings
  • improving the diversification of the Federal Government's debt portfolio

The Federal Government satisfies its funding needs on the international capital as well as money markets. As the federal debt management office (DMO) and exclusive service provider to the Federal Government as issuer, Bundesrepublik Deutschland – Finanzagentur GmbH (”German Finance Agency”) is responsible for day-to-day management of the debt portfolio. Thereby the Finance Agency does not only issue Government securities to finance the Federal budget. Defining a well-balanced long-term structure of the debt portfolio and ensuring short-term liquidity also belong to its main tasks.
Meeting the Federal Government's funding needs, reducing interest costs in the long term and limiting the risks which are inevitably inherent in any form of financing, are the main goals of the debt management activities.

An essential precondition for secure funding is an established sales channel in the form of a liquid secondary market in outstanding German Government securities. The existence of a liquid market, where tight bid and offer prices are quoted for substantial volumes by a large number of market participants at any given time, is a considerable advantage for investors as well as for issuers. Investors are able to make investment decisions at any time according to their individual risk preferences and market assessment, while issuers are always ready to respond to market demand at fair prices. Large volumes can be issued within the primary market as long as the secondary market provides reliable guidance for investors and issuers.

The Finance Agency sticks to its transparent and reliable issuance policy on the primary market which is characterized by a regular offer of partially strippable securities over all maturities, advanced full year issuance outlooks, detailed quarterly issuance calendars and a straightforward, clear and efficient auction process as well as a diversified auction group.
On the secondary market Finance Agency’s support operations add to these measures while securing a permanent tradability of Government securities. Liquidity is also supported by the future contracts established on the Eurex futures & options exchange, which allows market participants to  trade in notional Federal bonds (“Bunds”), five-year Federal notes (“Bobls”) and Federal Treasury notes (“Schaetze”). Today German Government securities  are the benchmark in the Eurozone Government bond market.

In general, the structure of the annual issuance program is based on the demand of investors in order to gain optimal auction results and sales volume for Government securities. But, on one hand, focusing exclusively on  demand, the issuance process might lead to a debt portfolio structure which  does not necessarily match the issuer’s objectives in terms of costs and risks.

On the other hand, structuring a debt portfolio based purely on an issuer’s objectives rather than in response to investors’ demand could do irreparable harm to the borrower’s benchmark status. Therefore the Federal Budget Law has allowed the Government to access the swap market, making it possible both, first, to optimize the structure of its debt portfolio and, second, to adhere to the demand oriented transparent and reliable issuance policy that has stood the test of time.

The use of swaps made it possible to modify the maturity structure of the debt portfolio in the direction of an adequate debt portfolio with respect to the issuer’s needs. A swap market which is at least as liquid as, or even more liquid than, the market for German Government securities itself is therefore an essential prerequisite for debt portfolio optimization.

Interest Rate Swaps of the Federal Government and its Special Investment Funds - bn Euro at Year-end







Money Market Swaps







Capital Market Swaps














Besides optimizing the debt portfolio in terms of costs and risks, the employed instruments themselves need to be kept under constant review in order to ensure a cost-effective funding in the future. The issuer should be ready to tap new market segments and to adapt his strategy to sustainable changes in demand. The use of new instruments becomes necessary as soon as they offer funding opportunities at favorable levels and / or allow a better diversification of the overall portfolio.