More German sovereign bonds

Financial Times Germany has:


The Federation will, from 2013, borrow money jointly with the Ländern [”states”] on the money market. According to Reuters news agency, the federal finance ministry and its finance agency has informed the Ländern about the conditions for Deutschland-Bonds. They could have a double figured billion volume. “The Federation has offered the “states” a joint issue of debt,” said the finance minister of Niedersachsen Hartmut Möllring. The emission could start even before summer 2013. “The market demand is traditionally for large amount at that time which is why this opportunity is open”, said an insider.

The maturity in question is at least 5 years. It should not be auctioned off; but sold by a banking consortium. This will be recruited from the group of banks that is certified for the auctions of Bundes securities. “The syndicate obliges itself to a minimum amount that will ensure success”, the insider said.

There is of course the traditional bickering by some of the “states” that think they can get better terms on their own.

The Bundesfinansminister, Wolfgang Schäuble, has fought against a joint issue as he is opposed to the same idea on an EU level by the ECB.


Though I did not expect it as such, I can’t say I’m surprised! The graph illustrates why (NOTE the logarithmic nature of the X-axis!)!

There is a desperate shortage of long maturity German sovereign bonds. It is with great difficulty the Bundesbank can keep the interest structure from collapsing: The span between the 5 year and 10 year maturity is under constant pressure and is difficult to keep on 1 pct.

What does a German Finance Minister do when he can’t run up more debt? No matter how hard he tries? Well: He borrows it!

Crosslinking to some of my other pieces on the DCHV electricity grid, the “states” mentioned are Hamburg (which as a hanseatic state is somewhat more akin to a state than a city – very complicated) and Slesvig-Holsten. Both areas are facing large investments in electrical infrastructure – not only from wind turbines – but also the extension to Norway of high voltage. These “states” have a strained (in German terms) economy but are vital to the “green” plan – which again is double talk for reduced oil dependence and phasing out of nuclear power.

Now the Federation will, due to constitutional reasons, only accept liability partly (very complicated) – but again who cares? A German sovereign bond is a German sovereign bond! These ”states” would face an otherwise “unfair” risk premium if not for the Federation.

sovereign bonds