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Bond Market Development in Germany

Essay by   •  March 25, 2012  •  Research Paper  •  1,468 Words (6 Pages)  •  1,840 Views

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The bond market of Germany (in terms of bond debt) is the world's third largest national market after such developed countries as the U.S. and Japan, with volume of 5.8 trillion. U.S. $ (December 2007, data of the Bank for International Settlements) Of those, over half of the debt falls on the bonds placed on the international market (mainly Eurobonds).And by many indicators Germany is the leader in Europe because the scale of the European corporate bond market is small.. At the same time, the shares of Germany in the global securities market is only 2,5%, the main reason of that is the late development of the securities market another reason is that in Germany, tax policy and requirements for issuing corporate bonds, until recently, hindered the development of debt market. Regulators in almost all EU countries have tried to prevent the issuance of debt obligations of corporate issuers with low credit ratings. Different rankings of the same issuer in the issuance of corporate debt in local and foreign currencies greatly complicate the identification of risks for investors. This complicates the job market to small investors and causes the need to attract large institutional investors. In this case, the priority of bank lending in Western Europe will slow the development of markets for corporate commitments and actions in the EMU.

In general, in the modern stock market bonds market is developed significantly more than stock market. Value of bonds and stocks in Germany are 10:1, whereas in such developed country as USA, for example, 4:3. The main investors in the market of German bonds are banks (36% of the outstanding bonds). They are followed by foreign investors (33%), third are other financial institutions as collective investment institutions and insurance companies - 17% the fourth - the population (13%). Foreign institutional investors prefer government bonds. The major holders of bank bonds serve the banks themselves.This is the main specifics of the bond market in Germany that the absolute dominance of bank bonds in the structure of debt and very minor, although growing, share of bonds of industrial companies. This is because In Germany, until recently were significant restrictions on nonbank financing. Was difficult issue of commercial paper and long-term bonds is mainly due to the complicated licensing procedures and tax on transfer of securities.German yields generally the same as that of the corresponding rating of the bonds of other euro zone countries. This is one of the achievements and benefits of creating the euro zone - forming a common capital market. In April 2008, according to the Bundesbank, the average yield of government bonds on the secondary market was 4%, bank bonds - 4.4%, non-bank bonds - 5.9%.

German companies relatively rare, resort to issue bonds. If, after the war, they accounted for about 15% of all bonds, then later their share had fallen to 1% or less. However, since the late 1990's in Germany, as in other EU countries, there has been rapid growth in borrowing in the bond market by non-financial companies. As a result, if in 1999 the ratio of corporate bonds and Germany's GDP was less than 1%, while in 2007 it was equal to 4% already.

Compared with Latvia and other European countries, bonds long played no more than a minor role as a financing instrument for German enterprise outside the financial sector. From the year 2002, however, this market segment has undergone a sharp expansion and has become more important in corporate financing. This has been due to a number of factors. The introduction of euro, for example, has led to the integration of the national markets for corporate bonds and has seen them gaining in depth and liquidity. An additional factor why Garman corporate bond market is much more developed than Latvian and what is more why Germany has become the leader of corporate bond in Europe is that the technology boom of the late 1990s resulted in a market increase in the financing needs of the large listed telecommunication enterprises in particular. This trend was reinforced by the concurrent wave of corporate mergers and acquisitions. Following the slump in share prices in 2001, the market for corporate bonds benefited from investors switching to investments promising a higher yield.

Since the introduction of the euro and the integration of the national bond markets, German

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