Federal bonds ("Bunds")

Profile

Maturity: 10 or 30 years

Income: fixed annual interest payment

Redemption: at par value

Price risk: medium (10-year) to high (30-year)

Issuer risk: very low

10 and 30-year Bunds represent the long end of the German Government yield curve. At year-end 2018, they account for about 67 % of the Federal Government’s debt portfolio, with 10-year bonds alone accounting for more than 46 %. They are therefore the most important source of funding for the Federal Government.

10-year and 30-year Bunds as a proportion of currently tradeable Government debt

Primary market

Ten-year Bunds will comprise in 2019 about 21 % (2018: 23 %) and thirty-year Bunds around 7 % (2018 about 8 %) of the annual issuance volume (incl. inflation-linked Government securities).

As in 2018, in January and July 2019 there will be two new 10-year Bunds. They will mature on 15 February and 15 August 2029. After initial issuances of € 4 bn they will be reopened six times with volumes of € 3 bn until they reach a total outstanding volume of € 22 bn each. So in comparison to the previous year the 10-year Federal bonds issuance volume increases slightly from € 42 bn to € 44 bn.

From January till July 2019 the 30-year Bunds will have monthly reopenings of € 1 or 1.5 bn. Thereof the 30-year Bund (maturing in July 2044) will be reopened just once April, the 30-year Bund (maturing in August 2046) will be reopened twice in February and June. The 30-year Bund (maturing in August 2048) will be reopened five times: in January, March, May, July and October. At year-end these three bonds will reach outstanding volumes of € 27.5 bn, € 28 bn as well as € 17.5 bn, respectively.
In August 2019, a new issue, maturing on 15 August 2050, is planned. After an initial volume of € 2 bn two reopenings of € 1.5 bn will follow in September and November, leading to a total volume of € 5 bn in this security.
In total the eleven reopenings will add to an issuance volume of € 14 bn in the 30-year segment in 2019 (2018’s issuance volume: € 15 bn).

Bunds as a proportion of total issuance volume in 2019

In contrast to the issuance volumes of nominal bonds which already had been fixed within the issuance calendar for the whole year, the issuance amount of the inflation-linked bonds is specified on a daily basis. So in this chart their share increases during the year with each new issuance of an inflation-linked bond (whereby the shares of the nominal bonds decrease slightly).

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 almost 30 % of 2019'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 2018, the total volume outstanding arrived at a figure of € 747.5 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 2018 they represented 59 % or € 2,751 bn. Trading volume of 30-year Federal bonds reached € 379 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 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 10- 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.