The market for German Government securities is one of the largest and most liquid markets for sovereign debt in the world. In 2009, the traded volume was around € 4.7 trillion[1]. This means that the average nominal volume in circulation (including the Bund’s own holdings) of more than € 1 trillion was turned over more than four times. In total, German Government securities worth over a nominal € 223 billion1 were sold by members of the Auction Group to other capital market participants in that period.
The German ten and thirty-year Government bonds, the five-year notes and two-year Treasury notes, which are traded on the German stock exchanges, numerous international electronic trading platforms and also in the over-the-counter (OTC) market, are quoted by market makers continuously from the morning until the early evening on a voluntary basis at narrow bid-offer spreads. These spreads are the smallest in the euro-denominated sovereign debt market. The voluntary basis ensures that no artificial liquidity is created that could give rise to misperceptions about the depth of the market among investors. In addition, the German Federal Government Finance Agency supports the market makers’ presence in the secondary market by helping out in case if needed, e.g. in exceptional cases when the liquidity of a given security should become a little stretched. For these purposes the German Finance Agency retains on its own books a certain portion of the nominal amount tendered at the auction of a new or reopened issue.
Besides ensuring that the German Government bonds can be traded at any time, it is, of course, equally important that trades can be executed at fair market prices. In this respect, there are no other fixed-income securities in the European capital market whose price quality is comparable to that of German Government securities. This is due primarily to the futures contracts traded on the German-Swiss futures & options exchange “Eurex”, whose pricing is oriented to German Government securities. German Government securities are the only accepted securities of delivery. Two, five, ten and thirty-year German Government securities serve as the underlying for these contracts. The main turnover is in the contract for ten-year Bunds, which also account for the lion’s share of the turnover in the international secondary market.
The outstanding volume of tradable German Government Securities can be seen by remaining times to maturity in the following graph.
[1] The figures stated here are based on secondary market data conducted by the German Finance Agency (BRD – Finanzagentur GmbH) via the Bund Issuance Auction Group. The evaluations list trading volumes and net positions (without primary market placements including electronic trading platforms) in the new funding tools and the classic German Government securities (“Bubills”, “Schaetze”, “Bobls” and “Bunds”) excluding the turnover in principal or coupon strip instruments. Also excluded are the institutions classified as Corporates, Retail or Other and the trades conducted by the Finance Agency.
