Federal notes are debt securities issued by the Federal Republic of Germany. Holders receive fixed annual interest payments (coupons) and repayment at full par value at maturity. With a manageable 5-year term, Bundesobligationen close the gap between short-term and longer-term German government securities.

Fact sheet

Bond type: nominal Federal bond

Maturity: 5 years

Yield: fixed annual interest payment

Redemption: par value

Price risk: medium

Liquidity risk: very low

Issuer Risk: very low

Experience has shown that the average investment period of 5 years for Federal notes is suitable for a wide variety of investment objectives - whether for consumption purposes or as part of asset accumulation. Thanks to their constant annual interest payments and guaranteed repayment at full par value at maturity, the returns achievable with them can be calculated precisely at the time of investment.

Since Federal notes are traded on the stock exchange, investors can buy and sell them there on any trading day. In this case, however, the price movements during the term must be taken into account. Although Federal notes are always issued at a price close to 100% and repaid at 100% at maturity, changes in market interest rates usually cause their stock market price to fluctuate a little each day during the term.

So, when purchased after issue, they can be bought either at prices below 100% (leading to price gains when held to maturity) or above 100% (leading to price losses when held to maturity). Price fluctuations after purchase are only relevant if the Federal bonds are sold before maturity. The following rule applies:

If the market interest rate rise, the bond price fall - if the market interest rate rise, the bond price fall.

Investors who correctly assess the future development of interest rates on the bond market can not only achieve regular interest income with Federal notes, but also price gains (or losses). These turn out differently depending on the remaining term to maturity and the level of the coupon:
The longer the remaining term and the lower the coupon of Federal notes, the stronger their price reaction to changes in the interest rate level on the bond market.

Issuer risk

The Federal Republic of Germany is liable for the repayment of Federal notes with its assets and tax revenues. Its ability to meet payment obligations arising from Federal notes determines the issuer risk. This risk is considered to be extremely low. Like all Federal securities, Federal notes are gilt-edged.

Price risk 

The prices of Federal notes move in the opposite direction to interest rates on the bond market. In the event of a rise in interest rates, investors may suffer capital losses if they sell the Federal notes before maturity. Their price risk is lower than that of Federal bonds (moderate). However, it can be completely eliminated by holding the Federal notes until maturity.

Liquidity risk

The risk of not being able to sell Federal notes at any time before maturity is extremely low, as Federal notes are among the most heavily traded government bonds in the euro area and the Finance Agency and the Bundesbank maintain the market.

Federal notes can be bought or sold via banks on any stock exchange trading day. Their issue dates are already fixed up to one year in advance.

Federal notes are issued on fixed dates published in advance. These issuance dates, as well as the issuance volumes, are published in the form of an issuance calendar at the end of the previous year for the entire following calendar year. The coupons of the individual federal notes are fixed a few days before the respective issue in line with the interest rate level on the bond market.

Banks and savings banks

Federal notes can be purchased on each trading day via any credit institution and held there in a securities account, where they can also be sold again if required. In principle, there is neither a minimum investment amount nor a maximum investment amount. Credit institutions generally charge fees for the purchase, sale and custody of the bonds.