German Bunds

Less Is Not More

German flag, frost, dpa
Frosty prospects as Germany's appetite for debt cools.
  • Why it matters

    Why it matters

    The lack of new debt issuances from Germany poses a problem for investors who are desperate for a safe place to park their money in uncertain times.

  • Facts


    • Germany is planning €197.5 billion ($243 billion) in bond issues in 2015, the smallest amount since 2002.
    • In 2009, the German government borrowed the record sum of €334 billion.
    • It is estimated that euro zone countries will issue between €876 billion and €1 trillion of bonds next year.
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German Finance Minister Wolfgang Schäuble is a determined man: Despite a weak European economy and international criticism, the Berlin government is sticking to its commitment to issue no new debt in 2015 for the first time since 1969.

Europe’s largest economy expects to continue in the same vein in future years: A new balanced budget provision will come into effect in 2016. The debt brake limits net new borrowing to 0.35 percent of the country’s gross domestic product.

The consequences for global investors hoping to park their money in the safety of German bonds, known as Bunds, were laid bare this week as the country’s debt agency laid out the numbers for 2015. Unsurprisingly, it’s not good news for those hoping to make a profit out of German bonds.

In the coming year, the only debt that Germany will be issuing is to refinance maturing securities. The German Finance Agency, the federal government’s supreme debt manager, announced Wednesday that the government is planning €197.5 billion in bond issues. That marks the lowest level since 2002.

This is the smallest amount Germany has borrowed from the markets since 2002. Tammo Diemer, who heads the Finance Agency, told Handelsblatt he expected the federal government will keep borrowing around €200 billion a year from investors in the coming years.

“The fact that investors are still buying German government securities, despite historically low yields, is an indicator of how much demand there is.”

Tammo Diemer, German Finance Agency

The combination of falling supply and heightened demand continues to push German bond yields to new lows. Yields on outstanding German bonds with maturities of less than four years have turned negative, and investors who purchase a 10-year bond today will get a yield of just 0.58 percent on Thursday, down a further 0.02 percentage points from Wednesday.

German bund yields are already the lowest of any major global economy. Ten-year U.S. Treasury bonds were trading at a yield of 2.15 percent on Thursday, while 10-years gilts in Britain will earn annual interest of 1.82 percent.

With such record low yields, the fact that investors are looking to German bunds at all is a sign of the uncertainty that still surrounds the global economy: Many investors simply have nowhere else they would rather put their money.

“With our government securities, we offer a safe and highly negotiable quality product that is in great demand worldwide. The fact that investors are still buying German government securities, despite historically low yields, is an indicator of how much demand there is,” said Mr. Diemer.

Less Is More

This is causing Germany’s debt agency to think outside the box. Mr. Diemer said that a new 30-year bond indexed to inflation could be issued next year for the first time. It will be part of €10-14 billion in inflation-linked bonds known as linkers, a relatively recent creation that is still in an experimental stage in Germany.

The interest and principal payments for these bonds will be based on changes in consumer prices in the euro zone. Although inflation is currently extremely low, at 0.3 percent in November, pension funds and insurance companies, in particular, are still interested in securities they can use to hedge against inflation in the long term.

Germany’s issuance plans for next year also include €38.5 billion in six- and 12-month securities, as well as €147 billion in bonds with maturities of two, five, ten and 30 years.

By contrast to Germany, other countries in the 18-member euro zone are looking at issuing more debt next year. While these countries are paying higher yields for their bonds, here too interest payments have in many cases fallen to new lows, including in southern European countries that were once the focus of Europe’s debt crisis.

With such record low yields, the fact that investors are looking to German bunds at all is a sign of the uncertainty that still surrounds the global economy.

For example, 10-year debt from Italy and Spain will earn investors 1.94 percent and 1.74 percent, respectively – less than Treasuries in the United States. Ten-year bonds in France are trading at a yield of just 0.85 per cent.

This is partly because investors are pinning their hopes on the European Central Bank, which has indicated that it could launch a large-scale program next year to buy as much as €1 trillion in sovereign European debt.

Having the ECB as a major buyer could encourage some countries to issue more bonds in 2015 than they actually need, in order to secure favorable interest rates while they can.

This incentive could encourage euro zone governments to issue as much as €1 trillion in new bonds next year, according to analysts from the German bank Commerzbank. Other banks including Credit Suisse, Royal Bank of Scotland and Barclays, predict new bonds for the euro zone totaling €876 billion to €918 billion. Money market security issues are not included in these forecasts.

According to estimates by Barclays, a total of just under €690 billion in bonds will mature in the euro zone next year – more than in 2014. This means that while the other euro countries will still be incurring new debts in 2015, it will be less than in previous years.


Investors Take Note: Finance Minister Wolfgang Schäuble shows off plans for no new debt. Source: DPA


The government is still a long way from issuing no debt at all. Maturing bonds and money market securities still need to be refinanced, that is, replaced with new interest-bearing securities. Nevertheless, Germany has come a long way since the financial crisis began. In 2009, by comparison, the German government had to borrow the record sum of €334 billion from investors.

Despite the declining trend, government securities will not become scarce in the future.

This fact is important for institutional investors, who are not fond of bond issues that are too small. The size of the bond market is one thing that makes Germany more attractive than other northern European countries, such as Finland and the Netherlands, whose debt is rated almost as highly as Germany. All have a triple-A rating from all three major rating agencies.

These countries’ bond issues are smaller and are considered not nearly as negotiable as German government bonds, which can be bought and sold in large volumes, at low cost and at any time.

“Just how highly investors rate the liquidity, that is, the negotiability of German government securities in the secondary market is an issue. We don’t have to market Germany as a sound borrower. Investors are well aware of the German government’s benchmark position for capital markets in the euro zone,” said Mr. Diemer.

To make sure this doesn’t change, despite the reduced need for refinancing, the Finance Agency will in future only issue new bonds with maturities of five and ten years twice a year. Otherwise, it will increase the volume of existing bond issues instead. Ultimately, new issues of five-year and ten-year securities will reach volumes of about €20 billion and €23 billion, respectively.


Andrea Cünnen has been working for Handelsblatt since 2001, and primarily covers the bond markets from Frankfurt. Christopher Cermak joined the Handelsblatt Global Edition in Berlin after two years covering bonds, the ECB and economics in Frankfurt. To contact the authors:,

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