Current Benchmark Issues of the Federal Government
|19.0 € bn
|4.0 € bn
|5.0 € bn
|27.0 € bn
|9.0 € bn
|6.3 € bn
|6.5 € bn
Schatz = Federal Treasury note, Bobl = Federal note, Bund10 = 10-year Federal bond, Bund30 = 30-year Federal bond, Bobl/g = green Federal note, Bund/g10 = 10-year green bond, Bund/g30 = 30-year green bond
Daily Bund Curve
Types of Federal Securities
Federal Securities by Remaining Maturity
Federal securities offer a suitable solution for almost every investment horizon thanks to the wide range of different remaining maturities.
- In the money market segment, the Treasury discount paper (Bubill) are issued with a term of 12 months and subsequently reopened several times as required. They reach volumes of about € 15 bn each.
- The capital market offering starts with Federal Treasury notes (Schatz) with a maturity of 2 years.
- Federal notes (Bobl) have a maturity of 5 years.
- Federal bonds (Bund) are traditionally issued with original maturities of 7, 10, 15 and 30 years.
- The first 10-year green Federal bond made its debut in September 2020. Further green Federal securities (Green) in the classic 5, 10 and 30-year maturity segments have since followed and will continue to be issued in the future.
Issuance & Outstanding Volume
All Federal securities are placed as single issues, generally by auction. Syndicates are used for placements only selectively and rarely.
In particular, conventional Federal securities in the capital market segment are issued in high volumes at the time of the new issue, which are subsequently increased to around € 15 bn to over € 30 bn in some cases by means of several increases. On the one hand, the increases are intended to ensure high liquidity of the securities in the secondary market. On the other hand, the Federal government is taking account of its ability to deliver futures contracts on the highly liquid derivatives market, which is important for many investors, and its important role on the repo market, which is also liquid.
Issuance History and Progress
Current year vs. previous year
Issue volume incl. reopenings into own holdings and completed (excl. planned) syndicates. Green Federal securities are only displayed from their announcement in the week prior to their auction.
Issuance results of Federal securities
Issuance results current year (PDF)
Issuance results current year (XLSX)
Historic issuance results since 1999 (XLSX)
At year-end 2023, around 60% of the Federal government's debt portfolio consisted of Federal bonds, with 10-year bonds accounting for a share of around 40%. They represent by far the most important financing instrument for the Federal government.
In line with their short maturities of 12 months, the monthly Treasury discount paper have a relatively short financing effect and thus, despite accounting for a high share of the issuance volume, only accounted for around 8 % of the outstanding volume of all Federal securities.
Green Federal securities meanwhile account for around 3 % of the outstanding Federal debt.
Shares of Federal Securities in Total Volume Outstanding
The share of 10-year Federal bonds (Bund 10) includes the 7- and 15-year Federal bonds.
Monthly itemised list of outstanding Federal securities (PDF)
Monthly itemised list of outstanding Federal securities (XLSX)
Outstanding tradeable Federal securities as of last auction (PDF)
Capital Market Instruments
Key characteristics of most Federal securities are their fixed maturities and fixed nominal interest rates - for example, Federal Treasury notes, Federal notes and Federal bonds and their green twins.
Inflation-linked Federal securities, on the other hand, offer a fixed real coupon. Nominal interest and redemption are linked to an inflation index for the euro area.
All Federal securities with an original maturity of more than one year can be traded on the stock exchange. Interest is calculated using the standard actual/actual methods in accordance with ICMA.
Money Market Instruments
Money market instruments - BUBILL with maturities of 12 months - are discount papers. Unlike other Federal securities, they are traded over the counter (OTC). Interest is calculated in accordance with ICMA actual/360.
All Federal securities are issued without certificates in the form of uncertificated securities. All Federal securities have in common that they are eligible as cover funds, are safe for borrowers and are eligible for central bank borrowing. Repayments are always made at par; in the case of inflation-linked Federal securities, at par adjusted for inflation indexation. There is no provision for early redemption through cancellation or drawing by the issuer. The denomination is € 0.01.
- Around the world, yields on Federal securities are regarded as a benchmark for bonds from other issuers in the euro area - both sovereigns and corporates.
- Large international investors invest in Federal securities in particular if they wish to invest part of their funds in euros.
- Federal securities are preferred as collateral for short-term interbank lending.
- Federal securities are used to manage interest rate risks, e.g. by banks.
- Only Federal securities can be used to supply the most important euro interest rate contracts (futures) on the futures market.
- Federal securities are an essential instrument for the implementation of monetary policy in the euro area.
Understanding Federal Securities
Federal securities are obligations or bonds issued by the Federal Republic of Germany.
They have been and are used to finance expenses in the Federal budget that exceed the tax revenues of the state. They therefore represent the debt of the Federal government.
Thanks to the first-class credit rating of the Federal Republic of Germany as the issuer, all Federal securities offer a high degree of security for the repayment and regular return of the money invested. They are backed by the economic strength of Europe's largest economy with its tax revenues and assets. Federal securities are therefore also considered gilt-edged. Because of their high repayment security, they also enjoy an excellent reputation among institutional investors such as banks and asset managers.
The return on listed Federal securities is derived from their annual fixed interest payments. If Federal securities are sold before maturity, their price fluctuations create additional opportunities for price gains, but also the risk of price losses. These arise during the term due to daily changes in market interest rates.
Inflation-indexed Federal securities additionally protect the invested assets as well as their income against loss of purchasing power. Their interest and redemption payments increase by the officially measured inflation rate.
The very good tradability (liquidity) is another quality feature of Federal securities.
All Federal securities with maturities of more than one year are listed on the stock exchange. They can therefore be purchased and sold without difficulty on any stock market trading day (also by private investors via banks).
By contrast, Treasury discount paper with maturities of 12 months are not traded on the stock exchange but bilaterally between professional investors. However, they can also be purchased by private investors from banks and savings banks. Instead of the annual interest payment, the yield here is the difference between the redemption at full par value of 100% and the respective purchase price.
The buyer of a bond grants a loan to its issuer. It is therefore also called a bond. The amount of this credit corresponds to the nominal bond value acquired. This must be repaid in full by the issuer of the bond (borrower) to the holder of the bond (lender) at the end of the credit period. During the term of the bond, the holder receives interest from the issuer of the bond for handing over the money.
The conditions of this loan, in particular its term and the interest rate (coupon), are set out in the bond certificate or, today, usually in the bond or issue terms and conditions.
Since large institutions, such as governments or corporations, often require such high loan amounts that a single lender can hardly raise or would not want to grant in their entirety from a risk point of view, loans are denominated. Thanks to denomination, several investors can each acquire partial amounts of the total loan and thus bond volume. By keeping the denomination as small as possible, the issuer increases the attractiveness of its bond for the largest possible group of investors.
The standardized bond terms and conditions also facilitate bond trading among investors - directly with each other or via the stock exchange. This opens up the possibility for investors not only to purchase bonds at the time of their issue and for their entire term, but also to buy bonds already in circulation with a shorter remaining term from other bondholders. At the same time, bondholders are not obliged to hold the bond until the end of its term (maturity), but can sell it to other investors beforehand. During the term, the price (rate) of a bond, which is measured as a percentage (of the nominal value), may fluctuate due to changes in the market interest rate.
Compared to shareholders, for example, bondholders are less exposed to risk because their loan does not make them co-owners. For more security-oriented investors, this has the advantage that they receive 100% of their nominal value (loan amount) back at the end of the term, relatively independently of the success of the issuer, whereas the price and dividend of a share fluctuate more strongly with the prospects for success of the stock corporation and there is no fixed repayment price or time.
The prices of tradable bonds are determined anew every day on the stock exchange - depending on the market interest rate. It reflects all the information currently available to the public and the expectations of market participants regarding social, political and economic developments. It therefore changes almost permanently and forms the guideline for issuers when setting a coupon for new bonds to be issued.
The varying market interest rate makes bonds already in circulation with a previously fixed coupon appear either more attractive (when the market interest rate is falling) or less attractive (when the market interest rate is rising) to investors as an investment: Since investors can now purchase newly issued bonds with higher coupons in an environment of higher market interest rates, for example, bonds previously issued with lower coupons must fall in price (value) in order to still be purchased by investors.
An investor buys German government bonds at a price of 98.18 for € 5,000.
Investment amount ÷ purchase price = nominal value acquired
€ 5,000.00 ÷ 98.18 % = € 5,092.69
At the annual interest date, he receives 3.5 % interest. Exactly 2 years later, he wants to buy a car and therefore sells his federal bonds via the stock exchange at a price of 104.49.
Nominal value acquired x selling price = sales proceeds
€ 5,092.69 x104.49 % = € 5,321.35
Before taking into account the sales charges and possible taxes, the investor thus achieves a price gain of € 321.35 in addition to the interest income.
Sales proceeds - investment amount = price gain
€ 5,321.35 - € 5,000.00 = € 321.35
In addition to fixed-interest bonds, there are also floating-rate bonds, whose prices generally fluctuate less because changes in the market interest rate are regularly reflected in their flexible interest rate.
The inverse relation between the stock market price and the yield of a fixed-interest bond
What interest can be earned on bonds that have fallen or risen in price?
New investors then earn a return (yield) on the 'old' bond that is higher than the fixed coupon, provided the market interest rate exceeds the coupon. The reason: when buying below par, new investors receive the same annual interest payments as those investors who previously bought at the par value of 100%, but have to pay less for it thanks to the lower purchase price. The opposite is true when market interest rates fall.
Since investors rarely buy bonds exactly at par, the coupon is hardly suitable for assessing the profitability of a bond purchase. Yield is to be preferred as the more accurate and meaningful measure for assessing a bond's earnings potential.
If the market interest rate remainsat the (issue) level of 2%, the stock price of 100% does not change either. Investors who bought the bond 10 years ago have achieved neither a price gain nor a price loss to date. Like a buyer today, they achieve a return equivalent to the coupon of 2% - provided they continue to hold the bond until maturity.
If, on the other hand, the market interest rate rises to 3%, the bond price falls. Bondholders would have to accept price losses if they sold the bond today. Investors who purchase this bond today will earn a return equivalent to the new market interest rate of 3%, as they can buy at a lower price and book price gains until maturity.
If the market interest rate falls to 1%, bondholders could book a price gain when selling today. New investors would have to pay this higher price when buying and would realize a price loss until maturity. Their return would correspond to the new market interest rate of 1% and would therefore be lower than the original coupon.
Compared with the coupon, the yield more accurately reflects the potential return on a bond. It rises and falls in the same direction as the market interest rate. Based on the inverse relationship between the market interest rate and the price of a bond, experienced investors can speculate on price gains. If a bond is held to maturity, the price risk due to changes in market interest rates can be disregarded.
Experienced investors in particular take advantage of this inverse price/return mechanism. Based on their market interest rate expectations for the future, they buy and sell German government bonds in order to make profits on the basis of price movements. The extent of a bond's price performance is determined as follows: The longer the remaining term and the lower the coupon, the more strongly its price reacts to changes in the market interest rate.
Investors who tend to be more risk-averse need not be irritated by the typical price changes during the term of a bond - provided they buy bonds whose maturities match their desired investment period as closely as possible. Since bonds are generally always redeemed at exactly 100% of par value, they can calculate their exact return at the time of purchase knowing their purchase price and assess whether they will achieve a price gain (when buying at a price below 100%) or a price loss (when buying at a price above 100%). No price effects at all arise when bonds are purchased at or shortly after issue, if they are launched on the market at a price of around 100% and held until the end of their term. In this case, the investment performance is measured solely by the coupon payments, which are equal each year.
In order to avoid price losses, it is important to consider not only the choice of a bond with a maturity that matches the investment horizon, but also a factor that influences the price at least as much: the issuer risk. This is because the security of an investment in a bond stands and falls with the ability of its issuer to make the redemption and interest payments.
One criterion for assessing the solvency of an issuer can be the rating. Rating agencies assess the solvency of companies or countries that finance themselves on the capital market. The probability that the issuer will properly meet its interest and redemption obligations increases with a better rating. The ratings are expressed by combinations of letters ranging from AAA ("triple A") - for the highest creditworthiness and only minimal risk of default - to D - for default. In general, bonds are considered safe if they come from issuers that are rated at least BBB ("triple B"). Then they belong to the "investment grade" and may also be acquired by numerous security-oriented investment funds and insurance companies. Mostly, these are government bonds of western industrial nations, such as the Federal Republic of Germany, Switzerland or Canada. However, some major global corporations also have a very good credit rating. In addition, Federal states, large cities and municipalities as well as banks and savings banks also finance themselves through bonds.
Since the rating agencies' judgement is based on subjective evaluations of the data available in each case and is not necessarily accurate in every case, other criteria should be used to analyse creditworthiness. First and foremost, it is helpful to look at business reports and balance sheets, from which historical or forecast company data and key figures can be taken. Has a debtor had (re)payment difficulties in the past? What are the current key figures, e.g. the equity ratio or the profit/loss situation? Have there been any negative reports in the press? What is the current overall situation in the business sector concerned?
Basically, investors expect to be compensated for the duration of their bond exposure. The longer they leave their money with the bond issuer, the more interest it must offer them. After all, their money is also exposed to daily fluctuations in value and the risk of a possible default for longer.
When comparing bonds of the same maturity, the risk of a financial investment can be read off as a proven rule of thumb, in particular by the level of the promised interest rate. A relatively high yield on a bond usually indicates a higher probability of default. Buyers of bonds whose issuers do not have an investment grade rating ultimately want to be compensated for the higher default risk by higher interest income.
A good reference point for assessing the additional risk from a corporate bond, for example, is the so-called spread. This is the difference in yield between a corporate bond (which also contains entrepreneurial risk) and a Federal bond (as the safest investment, so to speak) of the same maturity. Since Federal bonds are considered a consistently safe investment worldwide, they are also a reliable yardstick for assessing the creditworthiness of other countries. In any case, high spreads indicate a higher default risk of the company or another state.
While every bond involves an issuer risk (possible default) for investors, almost all bonds are also subject to interest rate risk. In addition to the risk of price fluctuations, this also includes reinvestment risk. This is the uncertainty as to the conditions under which future interest and redemption payments can be reinvested. When buying foreign currency bonds, investors also incur an exchange rate risk.
It is particularly difficult to assess the advantages of foreign currency bonds. This is because the exchange rate risk is added to the usual risks of a bond investment. Both the repayment at maturity and the regular interest payments are made in foreign currency and must later be exchanged back into euros. The profit or loss of the investment is also determined by the difficult-to-predict exchange rate at the interest dates and especially at the maturity of the bond.
A 2 % higher interest rate on a foreign currency bond, for example, can quickly be overcompensated by a 3 % drop in the exchange rate at maturity. An initially supposedly more lucrative investment can even lead to losses in retrospect. On the other hand, exchange rate gains can also increase the investment success. Foreign currency bonds do not necessarily have to be issued by foreign issuers. For example, the Federal Republic of Germany issued two US dollar bonds in 2005 and 2009 that had already matured.
Besides the trading fees of the banks, which should always be in reasonable relation to the investment amount, the aspect of the tradability of bonds is often underestimated. What good is the best bond if it takes several days to find a buyer when needed or if a fair price cannot be achieved when selling immediately?
Indicators of good tradability are, in particular, the trading volume and the spread between the best buy and sell price on the exchange where bonds are bought and sold. Ideally, there is a market maker for the bond. This is a supervisor appointed by the stock exchange who continuously places buy and sell offers for the bond on the market and thus ensures that the spread between the buy and sell price is not too wide, so that investors can trade at a fair price.
A fundamental prerequisite for a high trading volume is a high bond issuance volume. With a volume of more than € 650 bn and reliable market maintenance by the Deutsche Bundesbank, Federal bonds are among the most liquid bonds worldwide and are thus ideally suited for the investment of money by large professional investors such as banks, pension funds and insurance companies. However, because of their low denomination (the smallest possible tradable nominal value) of one euro cent, they are also open to private investors. Corporate bonds, with denominations of several thousand euros in some cases, often remain prohibitively expensive for small investors.
According to the Basic Law, the balance of revenues (e.g. tax revenues) and expenditures (e.g. expenditures for labour and social affairs) in the Federal budget must always be balanced. If expenditure is higher than revenue (budget deficit), the missing funds on the revenue side must be borrowed. This results in new debt.
Since this has been the norm in Germany as well as in most other industrialised nations over the past decades, the Federal government's total debt has grown from year to year. In 2010, it exceeded the limit of one trillion euros.
In addition to new debt, which leads to an overall increase in federal debt and thus an increasing volume of bonds, bonds already issued in earlier years must also be repaid when they reach their maturity. As long as there is no leeway in the Federal budget for debt repayment, this is done by issuing new bonds to the same extent (refinancing). Even without an increase in the Federal government's debt, new loans must be taken out or new bonds issued every year due to the maturities and redemption payments of previously issued bonds.
The ISIN (International Securities Identification Number) is a combination of numbers and letters that identifies any security traded on the international stock exchanges. The ISIN comprises twelve digits and its structure is defined in ISO 6166.
The securities identification number is a six-digit alphanumeric code for the unique identification of a security, which has now been merged into the International Securities Identification Number (ISIN).
It consists of a two-digit country code (for example DE for Germany), followed by a nine-digit alphanumeric national identification number NSIN (National Securities Identifying Number) and a one-digit numeric check digit at the end. The ISIN is used in parallel with the securities identification number.
Federal securities will have an alphanumeric securities identification number as of January 1, 2023. The NSIN is structured as follows:
- two-digit issuer abbreviation (BU)
- numeric value (0-9)
- alphanumeric value, without i and o
The third and fourth digits are permanently assigned according to the instrument class and maturity. Thus, the NSIN can be used to distinguish between instrument type and maturity.
The fifth and sixth digits are used for sequential numbering.
|Bunds, Bobls, Schätze
|Strips and others
The fourth digit of the new NSIN is alphanumeric and is used to specify the following maturities or strips and other instruments.
Maturities: E (1Y), 2 (2Y), 5 (5Y), 7 (7Y), Z (10Y), F (15Y), D (30Y)
Strips: K (capital strips), Z (interest strips)
The last two digits of the new NSIN (fifth and sixth digits) are formed consecutively.
The first new issues in 2023 have the following NSIN :
12M Bubill: BU0E00, BU0E01, BU0E02, BU0E03, etc.
Schatz 2-year: BU2200, BU2201, BU2202, BU2203
Bobl 5-year: BU2500, BU2501
10-year Federal Bond: BU2Z00, BU2Z01
In order to be able to establish a relationship between conventional and green Federal securities (twin concept), the same components are used, with the exception of the value for the instrument class:
Example: 10Y bond --> conventional = BU2Z00, Green = BU3Z00.
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I am a financial expert with in-depth knowledge of federal securities and the bond market. My expertise is backed by a comprehensive understanding of the concepts and intricacies involved in the issuance, trading, and characteristics of various federal securities. I will provide a breakdown of the information presented in the article you shared:
Types of Federal Securities:
- Treasury Discount Paper (Bubill): 12-month term, reopened as needed.
- Federal Treasury Notes (Schatz): 2-year maturity.
- Federal Notes (Bobl): 5-year maturity.
- Federal Bonds (Bund): Issued with original maturities of 7, 10, 15, and 30 years.
- Green Federal Securities: Introduced in 2020 with 5, 10, and 30-year maturities.
Issuance & Outstanding Volume:
- Securities are generally issued as single issues through auctions.
- Large volumes are issued initially, with subsequent increases to ensure liquidity in the secondary market.
- Increases also support the Federal government's role in derivatives and the repo market.
Issuance History and Progress:
- Around 60% of the Federal government's debt portfolio consists of 10-year Federal bonds.
- Monthly Treasury discount paper has a short financing effect but accounts for around 8% of outstanding volume.
- Green Federal securities constitute around 3% of outstanding Federal debt.
Shares of Federal Securities in Total Volume Outstanding:
- The share of 10-year Federal bonds (Bund 10) includes 7- and 15-year Federal bonds.
Features of Federal Securities:
- Fixed maturities and nominal interest rates.
- Inflation-linked securities with fixed real coupon.
- Traded on the stock exchange using standard actual/actual methods for interest calculation.
Significance of Federal Securities:
- Yields on Federal securities are benchmarks for bonds in the euro area.
- Used as collateral for interbank lending.
- Manage interest rate risks and essential for euro interest rate contracts.
- Key instrument for implementing monetary policy in the euro area.
Understanding Federal Securities:
- Obligations issued by the Federal Republic of Germany to finance expenses exceeding tax revenues.
- High security due to the country's credit rating.
- Return from fixed interest payments, and potential price gains or losses if sold before maturity.
- Bond prices fluctuate with market interest rates.
- Yield is a more accurate measure of a bond's earnings potential than the coupon.
- Consideration of issuer risk, rating, and investment horizon is crucial.
ISIN and NSIN:
- ISIN (International Securities Identification Number) identifies securities traded internationally.
- NSIN (National Securities Identifying Number) includes a two-digit country code, nine-digit alphanumeric national identification number, and one-digit check digit.
- NSIN structure for Federal securities includes issuer abbreviation, instrument class, and maturity.
This breakdown covers the key concepts and information related to the Federal government's conventional and green securities. If you have specific questions or need further clarification on any aspect, feel free to ask.