Federal Bonds - Deutsche Finanzagentur (2024)

Federal bonds are debt securities of the Federal Republic of Germany. They are available with maturities of 7, 10, 15 or 30 years from the date of issuance. Holders receive fixed annual interest payments (coupons) and repayment at full nominal value at maturity.

With original maturities of 7 to 30 years, Federal bonds offer the most long-term investment opportunities among Federal securities. They offer constant annual interest payments (called nominal interest or coupon) and repayment at full nominal value (price of 100 %) at maturity. This means that the returns that can be achieved with them can be calculated precisely at the time of the investment. They are therefore suitable for investors with a correspondingly long investment horizon.

Federal bonds are traded on the stock exchange. Investors can buy and sell them there on every trading day. However, price movements during the term must be taken into account.

New Federal bonds are always issued at a price close to 100 % and repaid at 100 % at maturity. Price fluctuations after purchase are only relevant if the Federal bonds are sold before maturity.

During the maturity period, changes in interest rates on the market ensure that their market price fluctuates daily. When purchased after reissue, i.e. during the maturity period, they are usually acquired at prices below 100 % or above 100 %. A purchase below 100 % leads to price gains if held until maturity. If purchased at a price above 100 %, price losses are incurred at maturity. The following rule applies:

If the market interest rate rises, the bond price falls - if the market interest rate falls, the bond price rises.

Investors who correctly assess the future interest rate development on the bond market have the opportunity to make price gains. On the other hand, however, price losses can also occur. These vary depending on the remaining term to maturity and the amount of the coupon:

Federal bonds are suitable as a long-term investment for security-oriented investors. If they are held until the end of their maturity, they can be used to earn precisely calculable, regular income. Professional investors can bet on price gains with Federal bonds if they correctly forecast the development of interest rates on the bond market.

Issuer Risk

The Federal Republic of Germany is liable for the repayment of Federal bonds with its assets and tax revenues. Its ability to meet the payment obligations arising from federal bonds determines the issuer risk. This risk is considered to be extremely low.
Like all Federal securities, Federal bonds are gilt-edged.

Price Risk

The prices of Federal bonds are developing in the opposite direction to the interest rates on the bond market. In the event of a rise in interest rates, investors may suffer capital losses. This risk is significantly higher for 30-year Bunds (high) than for 10-year Bunds (medium). However, it can be eliminated by holding the Bunds until maturity.

Liquidity Risk

Federal bonds are one of the most heavily traded government bonds in the euro area. The risk of not finding a trading partner, i.e. not being able to sell them at any time, is extremely low. The Finance Agency and the Deutsche Bundesbank also maintain the market and, if necessary, act as trading partners on the market themselves.

Federal bonds are issued on dates published in advance. These issue dates and the planned issuance volumes are published in the form of an issue calendar at the end of the previous year for the entire following calendar year. The coupons of the individual Federal bonds, on the other hand, are not fixed until one bank business day before the respective issue. They are based on the current interest rate level on the bond market.

Banks and Savings Banks

Federal bonds can be purchased on each trading day at any bank or savings bank. There they can be held in a securities account and also sold again if required. In principle, there is neither a minimum investment amount nor a maximum amount for investing in Federal bonds. Credit institutions generally charge fees for the purchase, sale and safekeeping of bonds.

Finance Agency

Only Federal bonds issued by 21 August 2012 can be held in custody at the Finance Agency. While safekeeping here in a debt register account is free of charge, a securities commission is incurred for the Deutsche Bundesbank when selling before maturity. The annual interest payments are paid out to the reference account.