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 40 %. 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

10-year Federal bonds will account for the third-largest share of the Federal Government's annual issuance volume in 2021, after Federal treasury notes and Treasury discount paper (Unverzinsliche Schatzanweisungen), with an expected share of around 10 %. The share of 30-year Federal bonds is 3.7 % in 2021, including the syndicate issued on 01.09.2021 with an issuance volume of € 5.5 billion.  

Issuance of the 7-year and 15-year Federal bonds, which were first issued in 2020, will continue in 2021 and is expected to account for around 5% of the annual issuance volume in each case (including inflation-linked and green securities).

After the new issue of the 7-year Federal bond maturing on 15 November 2028 in the amount of € 4 billion in April 2021, the first increase in the amount of € 4 billion took place in June in the amount of € 4 billion. In July, there was a further increase of €4 billion, followed by monthly increases of €3 billion from August to November. The final volume in 2021 will thus increase by €2 billion year-on-year to €24 billion.

2021, two new 10-year Federal bonds were issued in January and June. The first, maturing on 15 February 2031, was issued in January with an issuance volume of €5 billion and will experience five increases per month by €4 billion each. Its total volume will thus amount to € 25 billion. The second, maturing on 15 August 2031, will also be newly issued with a volume of €5 billion. In the third quarter, monthly increases of €4 billion each were made, with two further increases of €3 billion each planned in November and December. As this bond acts as a conventional twin of the 10-year Green Federal bond, with a new issue in September and a reopening in October of €3 billion each, it also undergoes two reopenings of the same amount. However, these will flow into the Bunds own holdings and increase its outstanding volume to € 29 billion.

Following the first issue in 2020, a second 15-year Federal bond maturing on 15 May 2036 with a volume of €3 billion was reissued in 2021. The new issue in May was followed by the first reopening in the same month. Further increases take place monthly (except in August and December). By the end of the year, their volume will total €23 billion, €500 million 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 August 15, 2048 and August 15, 2050 were further reopened on a monthly alternating basis. The 2019 Federal Bond (2050) was also fully added to the Federal Government's own holdings as a conventional twin to the first 30-year Green Federal bond issued via syndication in May with an issuance volume of €6 billion.

On 1 September 2021, a second syndicate was executed in the 30-year maturity segment: the new issue of the 2021 Federal bond (2052). The syndicate volume amounted to € 5.5 billion, of which € 500 million remained in the Federal Government's own holdings. The volumes of the first two increases in October and November have already been fixed at € 1 billion each. By the end of 2021, the total issuance volume should thus amount to € 17.5 billion. Compared to the previous year's issuance volume, which also includes a syndicate, this is € 1.5 billion less in the 30-year segment.

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 about half of the 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 2020, 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. However, in 2020 they represented just 48 % or € 2,063 bn. This figure already includes the trading volumes of the 7- and 15-year Federal bonds newly introduced in 2020.
Trading volume of 30-year Federal bonds reached € 494 bn or 10 %. 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.