The European Sovereign Debt Crisis in 2009 led to several new terms entering the financial lexicon, ranging from concepts like austerity to acronyms like PIIGS. German bonds, known as “bunds”, may have been relatively niche on a global level before the crisis, but investors now monitor so-called bund spreads to determine how well eurozone countries are doing relative to its strongest member.1
In this article, we’ll look at what German bunds are and how investors can use bund spreads to monitor the health of various eurozone economies.
Bunds and Bund Spreads
German bunds are simply sovereign bonds that are like Treasuries in the United States (the term “bund” is German for “bond”). These bunds are commonly sold in two-year, five-year, ten-year, and thirty-year increments, as in many other developed Western countries.
The yields paid to investors on these bunds are indicative of financial conditions both in the country and in the eurozone. Investors nervous about the country’s future or its future obligations to the eurozone may demand higher returns on their investment and thereby push bond yields higher, while those seeking haven may be willing to accept lower yields. Bund yields may also be influenced by the prevailing interest rates and monetary policy set forth by the European Central Bank (ECB)
Finding and Trading Bund Spreads
Investors looking for access to bund spreads to assist in their analysis of eurozone members can find the information in a variety of places. A good place to start is the Bloomberg Rates & Bonds section, which contains the latest rates for major eurozone economies, as well as several other influential economies around the world for comparison.
