12 Jan 2021

Eurex

Building a green Euro-interest rate curve to create a leading sustainable financial market ecosystem

Adding green sovereign bonds into German Fixed Income Futures deliverable baskets


The Federal Republic of Germany - Finance Agency recently released its issuance outlook for the Federal Government for 2021. Although the majority of the annual issuance volume in 2021 will be placed via the Federal Government’s conventional money market and capital market instruments, the issuance outlook for 2021 includes two key Green Federal securities. Together with its standard conventional bonds, the Federal Government intends to issue the first 30-year Green Bund in May, as well as a new 10-year Green Bund in September. When the Green German Federal twin security is issued, the conventional bond will be increased by the same amount at the same time.

This issuance outlook is again a testament that Green bonds and ESG are sustainable long-term themes

In the future, we will issue green Bunds every year to establish a green Euro interest rate benchmark. Planned well before COVID 19, we are keen to support the development of sustainable financial markets and, in particular, the green market segment by issuing Green German Government securities,” said Tammo Diemer, member of the Executive Board at the Federal Republic of Germany - Finance Agency.

Eurex was involved in the conception of the green market segment for Germany and contributed towards sustainable financial markets by integrating green bonds that are now deliverable into the existing German Fixed Income Futures. “For many of our investors, Futures deliverability is one of the most important criteria. The turnover rate in Bund futures is usually even higher than the strong trading in the underlying itself,” said Diemer. In order to ensure the German green bonds become deliverable, Eurex amended the minimum issue amount from EUR 5 to EUR 4 billion in the Eurex contract specifications for German Fixed Income Futures.

With the integration of these bonds, German Fixed Income Futures are the first futures to include green sovereign bonds into the deliverable basket”, said Jutta Frey-Hartenberger, fixed income derivatives R&D, Eurex. “The concept of the standard bond and the green twin bond increases the overall size of the deliverable basket and confirms the European benchmark status of German Fixed Income futures for international investors.

As the issuance of green bonds and other ESG-bonds is constantly increasing, Eurex Repo recently launched a Green Bond GC Basket. This essential new segment allows asset managers and real money accounts – which have already adjusted their investment policies in order to be ESG-compliant – to manage their money market activities accordingly. The Green GC Bond Basket is the first standardized repo product incorporating ESG data –Green German Federal securities clearly belong to that basket.

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