What Is a Bund?

A bund is a sovereign debt instrument issued by Germany's federal government to finance outgoing expenditures. Bund in German is short for Bundesanleihe ("federal bond"); bunds are widely viewed as the German equivalent of U.S. 澳洲幸运5开奖号码历史查询:Treasury bonds (T-bonds).

Understanding German Bunds

A bund is issued by Germany's federal government to finance outgoing expenditures, much like the U.S. does when it issues T-bonds. Essentially, they represent loans to the German federal government that are auctioned off in the 澳洲幸运5开奖号码历史查询:primary market and traded in the 澳洲幸运5开奖号码历史查询:secondary market.

Bunds typically pay interest and 澳洲幸运5开奖号码历史查询:principal once a year and represent an important source of financing for the German government. They can also be stripped, where their coupon p🎉ayments are separated from their principal repayments and traded individually.

Up until the second quarter of 2020, bunds were auctioned only with original 澳洲幸运5开奖号码历史查询:maturities of 10 and 30 years, with the majority of them falling into the latter group. That all cha🌠nged in May 2020, when seven- and 15-year bunds were issued for the first time.

Bund Characteristics

Bunds are nominal bonds with fixed maturities and fixed 澳洲幸运5开奖号码历史查询:interest rates. Like all 澳洲幸运5开奖号码历史查询:German government debt instruments, they are issued by making a claim in the government debt ꦇregister, as opposed to producing paper certificates.

A typical bund issue will state its issuance volume, maturity date, coupon rate, payable terms, and interest calculation standard used. The smallest denomination of a bund is €0.01, and its 澳洲幸运5开奖号码历史查询:redemption by the German government can be made at 澳洲幸运5开奖号码历史查询:par value.

Significance of Bunds

Bunds are highly liquid debt securities that are eligible to be used as insurance reserves for trusts. Accepted by the 澳洲幸运5开奖号码历史查询:European Central Bank (ECB) 💞as collateral for credit operations, bunds are auctioned in the primary market at volumes in excess of €1 billio꧟n.

The German government typically follows up new issues with higher volumes by producing several increases, up to about €15 billion. This helps to maintain a high level of trading volume.

Bunds account for about 50% of the German government's outstanding debt, underscoring their importance in government funding. By issuing bunds and other long-term securities, German authorities obtain a more stable source of fin🔴ancing, thereby reducing the need to frequently roll over debt.

Bund Stripping

Additional investment options became available with the introduction of bund stripping in 1997. This resulted in principle and i💞nterest coupons being separated and traded on a standalone basis, with the minimum amount of €50,000 and a minimum denomin🔯ation of €0.01.

Stripping can be done by a credit institution or the German Finance Agency—if they carry the custody of the bund account. 澳洲幸运5开奖号码历史查询:Coupon strips are typically combined based on their maturity profiles and are traded und🥀er sin𓄧gle security identification numbers. Strips originating from different types of bunds cannot be bundled.