A Great Achievement in Central Banking (II) | 120 comments (120 topical, editorial, 0 hidden)

Have you got any more explanation?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Nov 23rd, 2011 at 08:39:54 AM EST
[ Parent ]

... the German government has set up a special purpose vehicle to buy its own bonds. This allows it to sell the bonds gradually over time rather than in one big auction. Which makes sense. These big, lumpy bond auctions always were insane.

The accounting legerdemain enters into it if this SPV has access to the ECB's rediscount or market maker facilities. If it does, the German government issues bonds to... the German government, which then goes to the ECB to trade them for cash.

If it doesn't, then it's just stupid journalists being stupid.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 23rd, 2011 at 08:44:47 AM EST
[ Parent ]

Re: Well, it looks like... (none / 1)

like this you mean?

It would be fun if all eurozone countries did it ...

by Katrin on Wed Nov 23rd, 2011 at 08:54:48 AM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

Fixed link

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Carrie (migeru at eurotrib dot com) on Wed Nov 23rd, 2011 at 12:05:40 PM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

I wouldn't call a debt agency a special purpose vehicle. The use of a agency to handle the debt is quite common. And the treaty is quite clear that subordinated agencies of a state can't get credeit from the ECB either.

I think the Budnesbank is here just acting as a broker on the secondary markets.

by IM on Wed Nov 23rd, 2011 at 09:31:49 AM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

So who's holding the 2.4bn that weren't auctioned today? The Finanzagentur or the BuBa?

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Carrie (migeru at eurotrib dot com) on Wed Nov 23rd, 2011 at 09:37:36 AM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

Owner is the Finanzagentur. The Buba is only broker.

by Katrin on Wed Nov 23rd, 2011 at 09:55:56 AM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

The FT article supplied us with that link:

http://www.deutsche-finanzagentur.de/fileadmin/Material_Deutsche_Finanzagentur/PDF/Schuldenstand/Sch uldenstand_Quartal/2009-30-09.pdf

It doesn't matter it is from 2009, because is shows under IV. Bestand an Papieren im Besitz
des Bundes

that the Federal Republic owns around 48 billion of federal debt instruments. That won't be different now and easily explains the retained three billion of this action.

so owner federal republic, broker bundesbank

by IM on Wed Nov 23rd, 2011 at 10:07:02 AM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

But the bonds are retained by the BuBa for monetary purposes and are sold into the market at the discretion of the BuBa, not the Finanzagentur.

That's not a broker to me. Who decides whether the bonds are sold? The Owner or the Broker?

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Carrie (migeru at eurotrib dot com) on Wed Nov 23rd, 2011 at 10:07:07 AM EST
[ Parent ]

Re: Well, it looks like... (4.00 / 8)

I now tried to inform myself using the Finanzagentur GmBH website. At least according to them, the procedure regarding the primary market is this:

http://www.deutsche-finanzagentur.de/en/institutional/primary-market/auction-procedure/

"The German Federal Government usually places single issues by auction. Only members of the "Auction Group Bund Issues" can participate directly in these auctions (see the section entitled Auction Group Bund Issues).
The auctions are carried out via the Deutsche Bundesbank Bund Bidding System (BBS). "

So the use the Bundesbank or rather its bidding system.

Regarding the secondary market, they say:

http://www.deutsche-finanzagentur.de/en/institutional/secondary-market/secondary-market-activities-f inance-agency/

"The level of how much own securities can be held is regulated in § 2 (5) of the Budget Law for credit authorizations. This dictates that currently, credit can be raised for financing purchases "within the framework of market support operations in the secondary market". The volume of credit should not exceed 5% of the nominal volume of the Federal bonds, five-year Federal notes, Federal Treasury notes and Treasury discount paper in circulation annually.

At each auction the German Federal Government can retain a portion of securities for secondary market operations which is then sold successively in the market afterwards. The volume of securities retained for market operations varies widely from auction to auction. Since 2005, the amount retained has averaged about 20% of the issuance volume (which also included money market paper and inflation-linked German Government securities)."

and:

"For its secondary market operations the Federal Government uses electronic trading platforms and the German stock exchanges. The agency's stock of bonds can be sold or purchased in the spot market within the framework of the German Federal Government's liquidity planning. The focus is on interbank trading and on supporting the activities of the market makers. This service provided by the issuer also enables members of the Auction Group to conduct transactions directly with the issuer as counterparty if necessary. The spot transactions are supplemented by repurchase agreements ("repos") and securities lending. The German Finance Agency executes its transactions with a minimum impact on the market and in line with market prices."

So contrary to my assumption, the Bundesbank, apart from the bidding system is not involved at all. That also means the speculation of Alphaville is without merit.

by IM on Wed Nov 23rd, 2011 at 11:41:06 AM EST
[ Parent ]

Re: Well, it looks like... (none / 1)

Thinks, that's all clear now and Reuters was also wrong to say "Bundesbank".

What's peculiar here is that the Finanzagentur retains a stock of bonds which then uses for secondary market purchases, but (if we are to believe them) not as a market maker and as a price-taker. The Finanzagentur could well engage in limited yield manipulations in the secondary market, which would basically mean the federal government would be meddling in monetary policy. Of course they would never dream of doing such a thing. What they do say is that there is a "Federal Government [own Bond liquidity] Management", which could be construed also as meddling in monetary policy.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Carrie (migeru at eurotrib dot com) on Wed Nov 23rd, 2011 at 11:57:44 AM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

the Finanzagentur retains a stock of bonds which then uses for secondary market ~~purchases~~operations

Purchases or sales. Obviously, the initially retained stock is intended for sales.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Carrie (migeru at eurotrib dot com) on Wed Nov 23rd, 2011 at 12:59:21 PM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

I think you are reaching to find a connection to monetary policy.

"What's peculiar here is that the Finanzagentur retains a stock of bonds which then uses for secondary market purchases"

Is that peculiar? Or do all treasuries and debt agencies do this?

by IM on Wed Nov 23rd, 2011 at 02:19:33 PM EST
[ Parent ]

Re: Well, it looks like... (none / 1)

The Finanzagentur could well engage in limited yield manipulations in the secondary market, which would basically mean the federal government would be meddling in monetary policy.

That's probably what the "no more than 5 % of market volume" clause is there to prevent.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 23rd, 2011 at 03:04:28 PM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

I wouldn't call a debt agency a special purpose vehicle. The use of a agency to handle the debt is quite common.

I called it an SPV because there's no good reason not to simply have the Treasury do it outright. Not because it's toxic (it's not).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 23rd, 2011 at 03:06:22 PM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

A simple subsidiary. Nothing more. Everything the agency is on the balance sheet, after all.

by IM on Wed Nov 23rd, 2011 at 03:12:36 PM EST
[ Parent ]

Re: Well, it looks like... (none / 0)

See FT Alphaville post linked by Colman.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Nov 23rd, 2011 at 09:35:48 AM EST
[ Parent ]

Re: Well, it looks like... (none / 1)

I don't really understand the article.The Bundeabnk is intervening in the repo marjet by not intervening?

That point, though, semms to be easy to prove aor disprove:

>That, alongside the fact that the Bundesbank is retaining an ever greater share of bonds from auction, suggests only one thing to the logical mind.>

My empirical mind would just look up if the "ever greater share of bonds from action" is actually true prior to this action.

by IM on Wed Nov 23rd, 2011 at 09:57:55 AM EST
[ Parent ]

Re: Well, it looks like... (4.00 / 4)

Here are all the auction results this year:

http://www.deutsche-finanzagentur.de/fileadmin/Material_Deutsche_Finanzagentur/PDF/Aktuelle_Informat ionen/Auktionsergebnisse_E.pdf

The last auction of 10 year bunds was October 19th and 925 million out of 5,000 million € was retained. The first auction in 2011 was January fifth and 1084 million out of 5 billion was retained. So apart from this last auction there was no movement in the retained share.

And here is an explanation of seconderay markets finance activity.

http://www.deutsche-finanzagentur.de/en/institutional/secondary-market/secondary-market-activities-f inance-agency/

"The volume of securities retained for market operations varies widely from auction to auction. Since 2005, the amount retained has averaged about 20% of the issuance volume (which also included money market paper and inflation-linked German Government securities)."

by IM on Wed Nov 23rd, 2011 at 11:33:41 AM EST
[ Parent ]

A Great Achievement in Central Banking (II) | 120 comments (120 topical, 0 editorial, 0 hidden)

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