Author: Berfin Gedlaç
Date of Publication: 03/11/2022
To be a successfully stable government takes a lot of work and care. In the European Union, there is always Germany to rely on when it comes to economic strength. They are doing a similar process as other countries do. However, they are doing something better. Bobl is an acronym for ‘Bundesobligationen’, which is a standardized futures contract of the German Federal Government.
Let's see how they process their financial auctions.
The auction process (tender process) takes place via the Bund Bidding System (BBS). In particular, only members of the Bund Issues Auction Group shall receive Federal securities along with the framework of the tender process. Meanwhile, the Deutsche Bundesbank provides the tender process. The tender process started in December of the previous year. Actually, we split the year into quarters. Each quarter is three months long and at the end of the latest month, there are the auctions and the results of the actions. The annual preview and detailed annual insurance calendar came out in December. This calendar has expected insurance dates, maturities, and insurance volumes for the upcoming year. Six days before the auction security issues with insurance volume, maturity, and the timeline for the auction came up. Only one day before the auction, the invitation to bid has been announced, along with the coupon, interest date, maturity, insurance volume, and timeline.
Generally, the Placement of Treasury discount paper (money market) takes place on Mondays. On the other hand, inflation-linked Federal securities, Federal Treasury notes, and Federal notes are on Tuesdays. Auctions take place between 8.00 am and 11.30 am on Mondays. At that moment, the tender period starts to end with bids being collated, the decision on portions, the determination of retention quote, and notifying the bidders of portions. Two days after the auction, bidders are debited with the tender amount, and the issuer is credited. This loop goes on four times a year for each quarter.
What happened in the past two quarters
In 2021, there were 120 auctions, 2 syndicates, and €482.7 bn. Bund Issues Auction Group had 33 banks, 5,951 auction orders, €663 bn bidding volume, and -0.59 % Ø issuance yield. Here today, financing requirements are still in demand. Past two quarters, 57 auctions happened, €102.0 bn Bubills, €99 bn nominal bonds, and each €4 bn syndicated tap of 30-year Bund and Green Bund. At the beginning of this year, for Q1 and Q2, a €106 bn was determined. The money market was supposed to have 51.6% while the capital market 48.4% of the year in total. Also, only 2 syndicates would exist. However, for Q1 €112.2 bn in total, and for Q2 €112.55 bn was the result. The newly estimated money market decreased to 50.1% and the capital market increased to 49.9%.
According to the past two quarters, Q3 should have had €106.5 bn. However, estimated data for the next quarter shows us, Q3 has €112.6 bn. And that changes the money market to 49.6%, and the capital market to 50.4%. These numbers are quite different from the estimated ratios last December. The highest money market change happened in Q3. For Q4, the estimated € bn is 106.5. On the other hand,we expected the money market would be higher than the capital market.
So far, for the past three quarters, 30 auctions took place with €107.6 bn issuance volume. In that insurance volume, there are €53 bn Bubills, €53.5 bn fixed-income bonds, and €1.1 bn ILB (Investitionsbank des Landes Brandenburg). Meanwhile, €5 bn syndicated transaction of new Green Bobls in the last month has been done. For Q4, 26 more auctions are on board along with €106.5bn issuance volume, and some amount (~ € 1 bn) of ILB. At the end of December, we will have estimations for the next year.