Federal bonds ("Bunds")

Profile

Maturity: 7, 10, 15 or 30 years

Income: fixed annual interest payment

Redemption: at par value

Price risk: medium (7- to 15-year) to high (30-year)

Issuer risk: very low

7 to 30-year Bunds represent the long end of the German Government yield curve. At year-end 2020, they account for about 65 % of the Federal Government’s debt portfolio, with 10-year bonds alone accounting for around 41 %. They represent therefore the most important source of funding for the Federal Government.

10- (incl. 7- and 15-)year as well as 30-year Bunds as a proportion of currently tradeable Government debt

Primary market

In 2021 ten-year Bunds will comprise about 10 %. Besides Federal notes they represent the third largest share of the annual auction volume across all Federal securities – after Treasury discount paper and Federal Treasury notes. The share of 30-year Bunds comprises around 2 % of the annual auction volume. The newly added 15-year and the seven-year Federal bonds will account for about 5 % of the annual auction volume (incl. inflation-linked and green securities), each.

In April 2021, a new 7-year Federal bond maturing on 15 November 2028 is to be issued. The new issue of € 4 billion will be followed by tap in June of € 4 bn and from July till November by monthly taps of € 3 bn. The annual volume will add up to € 23 bn, 1 bn more than 2020.

2021, two new 10-year Federal bonds will be issued in January and June. The first, maturing on 15 February 2031, will be reopened five times in a monthly pattern for € 4 bn each, starting already in January, the month of the € 5 bn new issue. Its total volume will thus amount to € 25 bn.
The second issue, maturing on 15 August 2031, will also have a volume of € 5 bn. In the third quarter, monthly reopenings of € 4 bn, and in November and December two further reopenings of € 3 bn, each, will take place. As this bond is intended as the conventional twin of the 10-year Green Federal bond with a new issuance in September and a reopening in October of € 3 bn each, it will also be increased in the same amount into the Bund's own holdings, thus reaching a final volume of € 29 bn.

After the first issue in 2020, a second new 15-year Federal bond with a volume of € 3 bn will be issued in 2021, maturing on 15 May 2036. The new issue in May will be followed by the first reopening in the same month and further monthly reopenings, except in August and December. By the end of the year, the total volume will amount to € 23 bn, € 500 mn more than in the previous year.

From January to August 2021, the two 30-year Federal bonds issued in 2017 and 2019 with maturities on 15 August 2048 and 15 August 2050 will be further reopened on a monthly alternating basis. Every month, € 1 or 1.5 bn will thus be issued.
The Federal Bond 2019 (2050) will be completely added to the Federal Government's own holdings as a conventional twin of the first 30-year Green Federal bond, planned for May, in the amount of the so far undetermined syndicate volume.
In addition, a second syndicate in the 30-year maturity segment is planned for September: the new issue of the Federal bond 2021 (2052). Whereas here, too, the syndicate volume is still undetermined, the volumes of its two first reopenings in October and November are already fixed at € 1 bn each.

By the end of 2021, the issuance volume that can be determined so far will thus amount to € 11.5 bn. Compared to the previous year's issue volume, which includes a syndicate, the 2021 auction volume (to date without syndicate) in the 30-year segment will total € 7.5 bn less than in 2020.

Bunds as a proportion of total issuance volume in 2021

In contrast to the issuance volumes of nominal and money market securities which already had been fixed within the issuance calendar for the whole calendar year, the issuance amount of the inflation-linked securities is specified only right before issuance. So in this chart their share increases over the course of the year with each new issuance of an inflation-linked security whereby the shares of the other Federal securites decrease slightly. Similarly, the issuance volumes from syndicates and the increases of conventional twins of Green Federal securities into the Federal Government's own holdings are only included on the date of issuance. They lift the issuance volume - but not the auction volume.

Secondary market

Both in the primary and secondary markets, Bunds are one of the most important sources of funding for the Federal Government. They account for more than 22 % of 2021's auction volume and for more than half of trading volume.

Since years there are more than 35 Bunds in circulation, accounting for up roughly half of the outstanding German Government securities in the secondary market. About a third thereof reaches a volume in circulation of at least € 20 bn. At year-end 2021, the total volume of outstanding seven-, 10-, 15- an 30-year Federal bonds arrived at a figure of € 938.5 bn.

According to Finance Agency data, in the secondary market for German Government securities 10-year Federal bonds accounted for a total share of over 50 % of trading volume of reporting member banks of the Bund Issues Auction Group. In 2019 they represented 55 % or € 2,230 bn. Trading volume of 30-year Federal bonds reached € 339 bn or 8 %. Since many years 10-year Bunds are the flagship product at the secondary level of the German Government bond market.

Stripping

Bunds with a coupon of more than 0 percent can be stripped at the institution with which the securities are held in custody and their principals and coupons traded separately.

Additional investment opportunities have been available since the introduction of “Stripping” of 10- and 30-year Federal bonds in 1997. In case of a nominal interest rate higher than zero the principle and the interest coupons of these issues can be traded separately (from € 50,000; minimum denomination € 0.01). The separation of interest and principle is undertaken on behalf of the bond holder by the body carrying the safe custody account in question. It is also possible to reconstruct the original bond from the coupon strip and principal strip; however, only financial institutions may do this with their own bond holdings. Coupon strips with the same maturity are combined and traded under one single ISIN (security identification number). Strips from different types of bonds cannot be combined.

Since on September 13th, 2012, the Amendment to the German Federal Debt Administration Act (“Gesetz zur Änderung des Bundesschuldenwesengesetzes”) came into force and enabled the inclusion of collective action clauses (CACs) into the terms of newly issued German Government securities, already existing strips (not including CACs) and future strips (including CACs) are not fungible. So the Federal Government decided to establish new stripping dates. Since January 1st, 2013 new issuance terms and conditions came into effect: Federal bonds imply new standardised maturity dates on February 15th, May 15th and/or August 15th. (The former stripping dates were January 4th, July 4th and September 4th.)

Currently tradeable 7-, 10-, 15- and 30-year Federal bonds

The terms of issue for Federal bonds are available within the security master data after clicking on the corresponding ISIN.