Neue Zürcher Zeitung reports:  Deutschland bonds kurz vor emission

German Sovereign Bonds

Quote:

The Union and a number of the States will address the capital market together for the first time after the parliamentary summer break – starting in Juli. This is reported Tuesday by the news agency Reuters quoting information from insiders.” The preparations to a Union-State bond are in the final stage; but all conditions have not been finalised yet. That is why the financial agency will not go into details”, said a spokesman from the financial agency to the «Neuen Zürcher Zeitung». Reuters has furthermore information indicating an amount of 3 to 5 bio. An introduction of the so-called Germany-Bonds was unclear for a long time as some of the larger states in the union had obstructed. The data for the emission should be announced as soon as the participants are known, according to the Finanzagentur.

Comments:

  1. There is a dearth of quality German sovereign bonds, but 5 bio EUR is small potatoes compared to around 1,000 bio EUR in sovereign bonds and around the same amount in state bonds.
  2. It is a thorny issue as there are major infrastructure investments in Germany which are very much overdue (railroad, high tension transmission and highways). The problem is that some of the matters–electricity supply f.i.–are state and not union financed despite being of national importance.
  3. The technical side is that it just might be intelligent and cheaper to put up the transmission wires simultaneously with renovating the railroad.
  4. The hurdle here is that as Bund (federal) bonds carry an interest of 1 percent for 10 years of maturity whereas Land (state) bonds carry 3 percent interest. Furthermore some of the states that will get most of the investment are the ones most in debt. This would make the discrepancy between federal and state interest higher and levy a higher tax burden on the most strained states.
  5. The political side is even murkier: the Federal Government under Angela Merkel is conservative/liberal and the vast majority in the Bundesrat (approx. Senate) is social-democrat, and also there is the federal election coming up in the autumn.
  6. The perils are manifest: Röttgen was in charge of the build up of wind-turbines and solar-cells with the latter grossly manipulated by the Chinese producers besides causing all sorts of technical problem–this cost Röttgen his political life (probably also former Danish minister Lykke Friis as bills keep piling up due to weird subsidies).
  7. To make a difficult problem well nigh impossible, Germany is an infrastructural bottleneck due to its central position (having borders with half the members of the EU) and this needs to be coordinated with riff-raff of every persuasion.

German Sovereign Bonds Locked in Pension Funds

Provided this mess can come to some sort of order it would in the longer term impart a large supply of quality securities with higher liquidity than the present German sovereign bonds, which are largely locked up in pension funds unwilling to part with them.