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

With maturities of 7 to 30 years, federal bonds form the middle to long end of the German government yield curve. At the end of 2021, more than 60% of the federal government's debt portfolio will consist of Bunds, with 10-year bonds alone accounting for a share of around 40%. They are thus by far the most important financing instrument 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

With a combined share of over 80 billion or 20 % of the annual issuance volume in 2022, federal bonds represent the most important financing instrument for the federal government on the capital market. Only money market papers have a higher issuance share of 51 %.

10-year federal bonds account for the largest share in 2022, with a planned issue volume of € 56 bn or around 14%. After money market issues and federal treasury notes (17 %), they have the third-largest issue volume. Two new issues of 10-year federal bonds in January and July amounting to € 4 bn are followed by six reopenings of € 3 or € 4 bn each.

15-year Bunds are expected to reach a share of €14 bn or around 3% of the annual auction volume in 2022. Following two reopnenings of € 1.5 bn in the 2021 Bund15, a new issue of € 2 bn is planned for April. This will be reopened six times in steps of € 1 bn to € 2 bn until November.

The share of 30-year federal bonds in the planned annual auction volume is expected to exceed 3% in 2022, as two syndicates are planned this year. These are the 2021 (2052) federal bond reopening in March and the issuance of a new Bund30 in the fourth quarter. The reopening of the Bund30 was issued on March 1, 2022; the issuance volume was € 4 bn.

Eight reopenings of € 1 or € 1.5 bn are planned as auctions in this segment, adding up to € 10.5 bn.

7-year federal bonds will not be issued in 2022.

Bunds as a proportion of total issuance volume in 2022

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 accounted for more than 22 % of 2021's auction volume and for about half of the trading volume.

Federal bonds are also the most important financing instruments for the federal government in the secondary market.  At the end of 2021, a total of € 1008.5 bn in 7-, 10-, 15- and 30-year federal bonds will be outstanding. Individual bonds usually exceed € 20 bn in outstanding volume, some 30-year bonds even more than € 30 bn. Trading in Federal bonds accounts for more than half of the total trading volume of all German government securities.

In secondary market trading, 10-year Federal bonds have accounted for a share of significantly more than € 2,000 bn or around 50 % of the trading volume of the reporting banks in the German Bund issues auction group for many years. Since 2020, the trading volume of 7- and 15-year Bunds has also been statistically attributed to them. However, even without this subsumption, 10-year Bunds are the flagship of secondary market trading in German Government securities.

Trading in 30-year Bunds amounted to € 487 bn in 2021, or 10% of the total volume.

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.

Federal bonds with a coupon greater than zero can be stripped at the depository, and their nominal value and interest coupon can be 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.