D.he corona pandemic has a significant impact on the income and expenditure of the federal budget. The Federal Republic of Germany’s Finance Agency is therefore planning to issue federal securities in a record amount of 469 to 471 billion euros through auctions in 2021. According to the figures presented by the authority on Thursday, the issue volume has already doubled in the current year to the previous high of 406 billion euros.
The money raised through the issue of federal securities from investors and investors on the capital market flows into the financing of the federal budget and its special assets. The special assets include the economic stabilization fund (WFS) set up in the wake of the corona pandemic and the financial market stabilization fund (FMS) that emerged from the financial crisis in 2008.
As the head of the finance agency Tammo Diemer explained, there will be a focus on bonds with a 30-year term in the coming year. According to the issuing calendar, the federal government wants to finance bonds over 30 years with a volume of 11 billion euros. Accordingly, a new issue of a 30-year federal bond is planned for September 2021 as part of a syndicate process, which is due in August 2052. In addition, two 30-year Bunds already in circulation with due dates in 2048 and 2050 are to be increased. The newly issued 30-year bond with a term until 2052 is also to be increased. These increases are to take place in 9 auctions with a volume of between one billion and 1.5 billion euros each.
First 30-year green bond
In addition, a green federal bond with a 30-year term will be issued for the first time in May 2021, which is a so-called twin. This means that the features of the green bond correspond to those of the conventional federal bond, which was issued on August 21, 2019 with a coupon of zero percent and due in August 2050. Green bonds are used to finance renewable energies or environmental protection. These papers are also popular with investors because they enable sustainability criteria (ESG) to be met.
Sustainability is not just about environmental protection, but also about other ethical requirements such as the fair treatment of companies and employees or suppliers. Corresponding social bonds, however, are not on the federal government’s issuance plan. According to agency boss Diemer, bonds with a particularly long term beyond 30 years are also not planned for 2021, even if such long-term runners could strike a balance between the costs of an issue and the uncertainty about future market developments. The neighboring country of Austria recently caused a sensation in the financial markets with a 100-year government bond. On the other hand, Germany apparently has no plans for spectacular emissions of this kind.
Make money with debt
For investors, the 10-year federal bond in particular is an important reference instrument for investing in euros, the second most important currency internationally after the dollar. Above all, the high creditworthiness of the Federal Republic is in the foreground and less the return that can be achieved with the bonds that are considered safe. The federal government can therefore in some cases even borrow at negative interest rates. So creditors pay to be able to lend money to the German state. As it became known on Tuesday through a response from the federal government to a parliamentary question, the federal government had raised more than 7 billion euros in 2020 by December 3, thanks to negative returns.