BONN —Taking advantage of Europe's unquenching thirst for bonds, Germany decided this month to issue four tranches of fixed-rate notes backed by its postal and telecommunications pension fund.
Among the leading investors of these bonds, which essentially allows the government to delay making pension payments, are other pension funds using the securities to better match their assets with future liabilities, consultants and bank analysts said.
The government-controlled Bundes Pensions Service f%FC;r Post und Telekommunikation eV, Bonn, raised €7.5 billion ($9.6 billion) in a June 1 bond issue. The transaction was about two times oversubscribed with more than €8 billion worth of orders, reflecting a continuing strong demand for long-dated bonds among pension funds.
"These bonds are particularly attractive to pension funds looking to hedge their liabilities," said J%FC;rgen Heiny, Frankfurt-based investment consultant for Watson Watson Worldwide. "They have the same risk factors as government bonds, since I don't think the government is going to allow (BPS-PT) to go broke. This is just the kind of instruments that pension funds are looking to use."
The government plans to use €3 billion of that issue, combined with €2.5 billion remaining from a 2005 bond issue, to offset this year's contributions to the pay-as-you-go pension fund.
The transaction is set up so about €3 billion of the total is sold through a private placement that mimics the long-dated cash flow of future pension contributions. There will be no principal payments for the first 15 years in the private placement, and subsequent payments are amortized until 2037 and carry a floating rate, according to bankers close the transaction.
The remaining €4.5 billion involves fixed-rate bonds offered in three tranches, similar to a separate €8 billion pension bond offering in 2005 with the same goal in mind — allowing the country's Ministry of Finance to delay paying certain pension obligations.