Frankfurt Stock Exchange Bond TradesSummary: Like all major nations, the German government uses their bond market to raise / borrow money at the best interest rates available. This is a very extensive operation and is carried out on the Frankfurt Stock Exchange. We discuss the matter here. On the Frankfurt Stock Exchange bond trades are a very important part of daily business. On 1st January 1999, the exchange rate between the Deutschmark and the Euro was fixed at 1.95583. The total amount of domestic government debt was 796.425 billion euros. German government bonds are known as Bunds and all maturing after 20th January 1999 were changed to be denominated in euros. Figures were rounded to the nearest cent and no cash compensation was made.
Bunds are bearer bonds and are quoted in 1/100s of 1 euro. Settlement is T+3. A gross annual coupon is paid. Settlement is carried out either through an agency called Kassenvereine or via the two eurobond clearing agencies: Euroclear and Clearstream. The terrible problems caused by the eurozone crisis that started in 2010 with the bailout of Greece showed just how powerful the German bond markets really are in Europe, the eurozone and to the world financial system. The eurozone repeatedly looked to Germany's top politicians for leadership on the matter, and bluntly, any potential solution that Mrs Merkel did not like had little chance of moving forward. In addition to this, the debts of individual EU member states were being viewed against German ones. That is to say that the price to buy and sell debt, Portugese for example, was assessed partly by how far it's prices were from Germany's. This economic strength and competitiveness of Germany when compared to other euro and EU members has been made very clear as time has passed. In fact, this story on the BBC website in January 2012 clearly demonstrates this strength. As reported, it was the first auction with a negative yield - meaning that investors were so worried about the risk being taken in other (safe) locations, that they were willing to pay a small amount of interest to buy the bonds. Note, that investors were paying interest - not earning it! - to lend money to the German government. Now that is both respect and trust! Other related pages which may be of interest to you include:
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