Germany has caught up, but this finding is not satisfactory: because these are investors in German government bonds, and here public-law institutions such as the Bundesbank or the finance agency responsible for the debts of the German state are playing an increasingly important role.
At the end of March, according to their estimates, 32 percent of the federal bonds in circulation were attributable to the bond purchase programs of the European Central Bank (ECB).
That means: They are in the hands of the Bundesbank, which works for the ECB on the German bond market.
Markus Frühauf
Editor in business.
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At the same time, the finance agency significantly expanded its own holdings of federal securities during the corona pandemic. It has increased its share from 5 to 11 percent. 43 percent of federal bonds are now in the hands of state institutions. If the Bundesbank was still bound by the old PSPP ECB program not to buy more than a third of the federal bonds, this limit no longer applies in the PEPP pandemic program. However, the Bundesbank has not exceeded the mark so far, which suggests reluctance. Last but not least, Bundesbank President Jens Weidmann is following the ECB's purchase programs critically.
In the medium term, the finance agency should also be aiming to significantly reduce its own holdings of federal securities. The fact that it more than doubled in the Corona crisis is likely to have been due to the high level of funding required by the federal government. This was associated with numerous issues such as the new terms of seven and 15 years or in the syndicate process, where selected banks specifically target investors. The finance agency will sell titles from its own holdings at a later date in order to “cultivate the market”. This is also likely to be necessary because the circulation of federal bonds in the pandemic has increased by almost 40 percent to now 1,547 billion euros. Around two trillion euros of Italian government bonds are in circulation, France is just behind.
Also many government investors from abroad
Otherwise, the share of domestic investors in government bonds is limited, it should be another 3 percent, including public institutions from the Sparkassen Group and the Landesbanken.
The remaining 54 percent are held by foreign investors, according to estimates by the finance agency.
State institutions dominate here too.
These include central banks and sovereign wealth funds, which have to invest their foreign exchange reserves in the euro, the second most important reserve currency after the dollar.
These are mainly countries outside the euro area, in which 39 percent of federal bonds are held, of which 18 percent are held by central banks and sovereign wealth funds.
Other investors account for 21 percent.
Anglo-Saxon hedge funds are likely to continue to play a major role here. They use federal titles as collateral for financing transactions, although they are likely to prefer short terms of up to two years. The finance agency is active in the repo market, on which securities are sold and bought back at a later date, and should earn a double-digit million amount per year. Even if Bunds, for example in the trend-setting ten-year maturity, are clearly in the negative yield range again at minus 0.473 percent, money can be made with them.
Because falling yields mean rising prices, which means that income is possible in trading. In addition, Bunds benefit from the first-class credit rating of the German state (“AAA”) and their high liquidity. That is why they serve as a cash substitute, especially in times when companies and institutional investors have to pay negative interest - so-called "custody fees" - for their liquidity parked at banks.
In the euro area, federal bonds have a reference status. In the coming years, however, the EU will attract a lot of attention as a bond issuer. By 2026, it wants to borrow more than € 750 billion in debt, a third of which will be in green, sustainable bonds. Last year, the federal government made its debut with green federal bonds. Of this, 17.5 billion euros are currently in circulation over the three terms of five, ten and 30 years. A new ten-year green federal bond should be issued in September. Then the EU also wants to launch its first green bond.
So far, Brussels has been able to attract investor demand of well over 100 billion euros with individual joint bonds. That could also be the case soon. For the federal government, the green bonds have an important purpose - to prove their attractiveness for other issuers such as banks or companies. The twin concept was introduced for this purpose: every green bond is accompanied by a conventional twin. This makes it possible to determine exactly which financing advantage green stocks offer. In the ten-year term it is currently 0.07 percentage points.