The Bund's green twins: Green Federal securities
Green Issues 2022
In 2020, the German federal government issued green federal securities for the first time with a total issuance volume of €11.5 bn. In 2021, the issuance volume was €12.5 bn. In 2022, the issuance volume of green federal securities is to be further expanded.
With a new issue of a green federal bond planned for the 3rd quarter of 2022 as part of a syndicate, the German government is continuing its strategy launched in 2020 of giving investors worldwide access to green benchmark bonds and a green yield curve.
Furthermore, three reopenings of 10-year green bunds with a total volume of €4.5 bn are planned for 2022 via auction process. The reopening of the 30-year green federal bond was conducted with a volume of € 4 bn on 1 June 2022 by syndicate.
The German twin bond concept
What makes them so special? The German Federal Government's new, green securities will always be issued with the same characteristics as an existing, conventional Federal security – creating twin bonds, identical in maturity and coupon. Their issuance volume, however, will be different, with conventional issues being placed at significantly larger volumes than its green twin. They will also differ in their ISIN code. Germany plans to offer twin bonds at two-, five-, ten- and thirty-year maturities, building a green yield curve in the medium term.
Currently tradeable Green Federal securities & conventional twins
|No security was found.|
|2021 (2050) Bund/g||15.08.2050||0.00 %||10,000 € m||01.06.2022||DE0001030724|
|2019 (2050) Bund||15.08.2050||0.00 %||34,500 € m||01.06.2022||DE0001102481|
|2021 (2031) Bund/g||15.08.2031||0.00 %||8,000 € m||04.05.2022||DE0001030732|
|2021 (2031) II Bund||15.08.2031||0.00 %||31,000 € m||04.05.2022||DE0001102564|
|2020 (2030) Bund/g||15.08.2030||0.00 %||8,000 € m||02.03.2022||DE0001030708|
|2020 (2030) II Bund||15.08.2030||0.00 %||32,000 € m||02.03.2022||DE0001102507|
|Bobl/g||10.10.2025||0.00 %||5,000 € m||04.11.2020||DE0001030716|
|Bobl||10.10.2025||0.00 %||25,000 € m||02.12.2020||DE0001141828|
Rhyme and reason
The expenditures defined as 'green' are to make a contribution to climate and environmental protection.
With this issuance of green Federal securities, and the reporting that comes along with it, the Federal Republic of Germany will create a high degree of transparency on the federal budget's green expenditures. The Government has looked to established market standards for guidance on the definition of green budget positions, such as the UN Sustainable Development Goals or the Green Bond Principles formulated by the International Capital Market Association (ICMA).
The first Green Bond Allocation Report was published on 20 April 2021, showing accurately the allocation of 2019’s eligible green expenditures to the issuances in 2020. The release of the first impact report with the environmental effects of those expenditures is planned for mid 2022.
Furthermore, the German Federal Government and the Finance Agency also intend to substantially strengthen and decisively develop the market for green and sustainable forms of investment. The concept of twin bonds provides investors with a deep insight into market structures, as regards both the price difference between conventional and green bonds, and market participants' demand preferences for various green bond maturities.
German twin bonds
Benchmark status calls for prudent action
German Federal securities serve as a reference for all interest rate products in the euro area. To be able to fulfil this important function reliably, they must have special characteristics: the German Federal Government's extraordinary credit quality and the securities' high level of liquidity. Investors must be certain that the instruments can be bought and sold at any time, even in large quantities. This certainty requires considerable volumes in circulation for each German Federal security. Against this background, the Federal Republic of Germany always takes great care when preparing to issue a new financing instrument. After all: the introduction of green Federal securities would, all else being equal, reduce the issue volume of conventional Federal securities.
Liquidity in conventional Federal securities
The Finance Agency removes this disadvantage by increasing its own stock of conventional bonds at the time it issues the green Federal security and by exactly the same amount.
These additional own holdings in conventional securities can be used on the secondary market, for repo transactions or for lending activities. The high level of liquidity associated with conventional German Federal securities therefore remains unchanged vis-à-vis a situation excluding the green twin, and the Bund's benchmark status remains well supported and secured.
Enhanced value for investors
Holders of German Government securities appreciate the fact that they can trade them in high volumes at any time. The issuer's credit quality, a reliable market presence and a transparent issuance policy are highly valuable unique features to them. This applies to both conventional and green securities. For the latter, additional transparency on green spending in the federal budget is created. Therefore, according to the joint assessment of the German Federal Government and the Finance Agency, the value of the green Federal securities should in general exceed the value of their conventional twins. From the issuer's perspective, this warrants at least equal pricing for green Federal securities compared to their conventional twins.
Implementing the twin concept on the primary and secondary markets
On the primary market, Green Federal securities can be newly issued both in syndicate procedure and in the established auction procedure of the Federal Government. Regardless of the issuance procedure, the conventional German Federal securities are always added to the Federal Government's own portfolio at the same time.
On the secondary market, the Finance Agency performs its activities established for conventional Federal securities for their green twins. The twin concept and higher own holdings in conventional bonds facilitate combined and debt-neutral sale-and-purchase transactions (“switch trades”) between both bonds. The latter enable the Federal Government to carry out its activities in a transparent and economically sensible manner, reflecting the higher value of green federal securities compared with their conventional twins.
Conventional German Federal securities serve as interest rate benchmarks for the euro area. Going forward, Germany plans to establish a green yield curve for the euro area, with the common key maturities of the conventional curve: two, five, ten and thirty years. It is the Federal Government's ambition to establish the yields of green Federal securities as the reference for the Euro green finance market.
Market participants with relatively short (e.g. central banks), medium-term (e.g. investment funds) or relatively long (e.g. pension funds) investment horizons will soon have a green, transparent investment opportunity with highest credit quality at their disposal.
Green Bund curve
Green Bond Framwork
Green issues 2021
- Press release: Reopening 10-year Green Federal Bond (2021) 2031 (20.10.2021)
- Press release: 10-year Green Federal Bond (2021) 2031 (08.09.2021)
- Press Release: 30-year Green Bund 2021 (2050) (11.05.2021)
- Press Release: First 30-year Green Federal bond (11.05.2021)
- Transaction review 30-year Green Bund (11.05.2021)
- Allocation Report 2021 [PDF]
Green issues 2020
The Federal Republic of Germany was honored "Most Impressive Government Green/SRI Bond Issuer" in the Global Capital Bond Awards 2021 for its outstanding performance in the field of Green Government securities.
The first 10-year Green Federal bond is also a multiple award winner - including being named "Green Bond of the Year 2020" by Global Capital and Environmental Finance. In the Climate Bonds Initiative Awards, this Green Federal bond won in the "Largest Green Sovereign Bond 2020" category, and it also won two awards from International Financing Review as "Euro Bond" and "Sustainable Bond of the Year 2020." The judges paid special tribute to the twin concept and the "Greenium".