The Finance Agency generally conducts secondary market activities in a market-friendly manner and at prices in line with the market in order to prevent trends from being triggered or reinforced. In doing so, it draws on its own holdings of Federal securities, which it acquires on the secondary market or regularly retains in auctions as a retention quote.
Aims of Secondary Market Activities
On the one hand, Finance Agency's activities support the smooth trading of German Federal securities - on the other hand, it gains direct insight into the current demand and supply situation on the secondary market by participating in trading on a daily basis.
The combination of secondary market transactions with repo trading has a particularly high information content in this regard, which can also be included in the structuring of the issuance calendar and allocation decisions. In addition, the flexible timing of the sale of the own holdings in the secondary market offers the Federal Government the opportunity to better diversify its financing activities in terms of time. This contributes to lowering its financing costs. Overall, the cooperation with a large number of international investment banks in conjunction with the use of the Federal Government's own holdings of Federal securities indirectly contributes to market-driven pricing and successful primary market placements.
In the course of an auction, the Finance Agency regularly retains a portion of the respective auction volume as a so called retention quote. This is usually around 20 %. A large part of this retained stock is sold on the secondary market after the auction. The retained securities can be used, among other things, to collateralise repurchase agreements ("repos") or for securities lending.
The amount of own securities on an annual basis is governed by § 2 (5) of the Federal Budget Act. Own securities may currently be built up to a maximum annual amount of 20% of the amount of outstanding German Government securities.