This document provides an overview of bond markets in France, Germany, Estonia, and Denmark. It discusses the types of government bonds issued in each country, including OATs in France, Bunds in Germany, and how government bonds are issued and the investor base in Denmark. It also covers covered bonds, corporate bonds where present, and describes the large mortgage bond market in Denmark and Germany's Pfandbriefe market.

1. BOND MARKETS IN FRANCE,
GERMANY, ESTONIA AND
DENMARK
Presentation by Group V for continuous
assessment in the subject of Financial Markets
and regulatory Systems
Kshitij Sharma (920)
Pooja Menon (928)

2. France
• The French covered bond market is the fourth-largest
in the world, with more than €360 billion outstanding
in 2012. Despite the global issuance slowdown in 2013,
covered bonds remain a key funding tool for French
lenders, allowing them to diversify their funding mix
and strengthen their funding profiles. Buyers in Asia
and the Middle East were responsible for half of net
purchases of French government bonds in 2012, with
total non-resident holders of French debt reaching 62
percent.

3. French government bonds
• French Government Bonds are also known as OATs,
(Obligations Assimilables du Trésor) which are longer
term bonds. There are also BTF (Bons du Trésor à taux
fixe et à intérët précompté) short-term bonds and
BTANs (Bons du Trésor à taux fixe et à intérët annuel)
medium term bonds with a maturity of two to five
years. Agence France Trésor (ATF) is the Department
of the French Finance Ministry responsible for
managing public debt and the Treasury. All issues trade
on an over the counter basis.

4. Types of OATs
• Fixed Rate or Nominal OATs
• Bond investors who want guaranteed predictable income in
France may consider fixed rate or nominal OATs, which are
issued for terms up to 50 years in nominal value of one
Euro. OATs are repaid in a lump sum at maturity and
repaid at par, i.e. at their nominal value of one Euro per
bond. Interest (coupon) is paid once a year for the life of
the bond. The bond is “fixed rate” -- the interest annual
coupon does not vary. Maturity dates of fixed rate OATs
and coupon payment dates for these bonds are either 25
April or 25 October.

5. Types of OATs (contd.)• Inflation-indexed or Index-linked OATS
• Bond investors who want additional income in France but
are also concerned about inflation (either in France or
European inflation) may consider inflation-indexed or
Index-linked OATs. These are fixed-rate bonds, the
principal of which is at par at the time of maturity and
coupons (interest) are paid annually. However, the bond is
also protected against French inflation (OAT i) or European
inflation (OAT Euro i) by linking the principal to a daily
reference point calculated in relation to the French
consumer price index (excluding tobacco) for OAT i or the
harmonised price index for the Euro zone for OAT Euro i.
• In this case, the coupon received by the investor, is a fixed
part predetermined by the percentage of the rate applied to
the principal, and a variable part that is indexed to inflation.

6. Types of OATs (contd.)
• Capitalisation OATs (or Zero-coupon OATs)
• Bond investors who may want to start saving for longer
term goals such as retirement but do not have a lot of
money now opt for the capitalisation or zero-coupon
OATs. Capitalisation OATs do not pay coupon amounts,
and are also known as “zero coupon” or “stripped” OATs.
The capitalisation OAT does not have a coupon amount,
only a principal amount or principal certificate. Thus the
capitalisation OAT is the principal certificate. Because there
is no coupon, no annual payment of interest, the zero-
coupon OAT costs less than buying a nominal fixed rate
OAT.

7. Other categories of Bonds
• Caisse de Refinancement de l'Habitat (CRH), a type of
credit institution that is governed by a specific law, was
founded in 1985 exclusively to refinance banks' housing
loans. Originally backed by an explicit state guarantee, CRH
is now a private corporation whose shareholding banks—
Crédit Agricole S.A., Crédit Mutuel, Société Générale, BNP
Paribas, and BPCE—may contribute covered bond
collateral and issue CRH bonds in proportion to their
ownership. Eligible assets are limited to residential
mortgage loans, state-guaranteed home loans, and third-
party-guaranteed home loans up to 35% of the collateral
pool.

8. OFH Bonds
• The French government introduced a new legislative
framework in early 2011, and another type of credit
institution—"Société de Financement de l'Habitat“
(SFH)—which could issue "Obligations de
Financement de l'Habitat" (OFH). OFH can be backed
by residential mortgages and guaranteed home loans
without limit, along with some senior ABS.

9. Germany
• German bonds are known as Bunds (from
Bundesanleihen). Bund maturities range from four to
thirty years. Other bonds, such as five year federal notes
“Bobls” (from Bundesobligationen); two year maturity
federal Treasury notes “Schatze” and Federal savings
notes (Bundesschatzbriefe) are also purchasable by
individuals. Inflation-linked German Government
Bonds have been added recently to bond market
offerings. There are various tax provisions related to
German bonds, including a withholding tax on interest
for most investors.

10. Bond market in Germany
• Bonds are about 2/3 of the total amount of securities
outstanding in bonds and shares. About 60% of the
German bond market is government bond debt, 29% is
corporate, and 11% is asset-backed. Bond markets are open
to both institutional and individual investors, but there is
much more participation generally by institutional investors
than individual investors. German individual investors in
bonds represent less than 5% of the direct investment in
the German bond markets. The majority of bond market
participants in Germany are institutional investors, such as
pension funds, insurance companies and banks.

11. Indirect investing
• The German Government Bond issuance is considered
a “gold standard” or benchmark in Europe (even after
the creation of the Euro). In Germany, the bond
market for individual investors is not significantly
“direct”, that is, although the individual investor in
Germany has significant amounts of bonds in his/her
overall asset holdings, most of the activity is not by
purchasing individual bonds but rather by holding
bonds through mutual funds and in “insurance”
products, i.e. pension and retirement funds.

12. German Pfandbriefe
• Pfandbrief issuers use pfandbriefe to fund loans that are
secured by real estate liens, ship or aircraft mortgages or
claims against public-sector bodies. Depending on the
type of collateralization, these bonds are referred to as
Mortgage Pfandbrief (Hypothekenpfandbrief), Public
Pfandbrief (Öffentlicher Pfandbrief), Ship Pfandbrief
(Schiffspfandbrief) or Aircraft Pfandbrief
(Flugzeugpfandbrief).

13. German Pfandbriefe (contd.)
• With a volume outstanding of EUR 806 billion, the
Pfandbrief held a leading place in the European bond
markets. The high credit quality of mortgage Pfandbriefe,
generally a triple-A rating from at least one rating agency,
stems from some key features: first, a well-established
regulatory framework, second, the quality of the collateral
pool, which must be covered by related assets of at least an
equal amount and yield; third, the high quality of the cover
pool encompassing first ranking mortgages ; and fourth, in
case of the bankruptcy of the issuer, the privileged position
of Pfandbriefe holders is guaranteed by a statutory
preferential right and the separation of the cover pool
(administered by an independent trustee).

14. Bond Market – Estonia-Rating
• Estonia Ratings Affirmed At 'AA-/A-1+'; Outlook
Revised To Stable On Economic Resilience And
Political Stability

15. Fluctuating market

16. Corporate Bonds
There is not much of a corporate bond market in Estonia,
which is not surprising considering
• (1) the small number of large corporations,
• (2) easy availability of bank credit over the last few
years, and
• Some real estate projects were financed through
(privately-placed) bonds.

17. Corporate Bonds - 2

18. Debt Market - Denmark
Danish bonds fall into 4 distinct categories:
• i) Government bonds issued by the Kingdom of
Denmark;
• ii) Mortgage bonds, mortgage bonds issued by specialist
mortgage credit institutions and banks; In Denmark, the
mortgage bond market is more than four times larger than
the Danish government bond market - and mortgage bank
lending exceeds commercial bank lending
• iii) Bonds issued by regional authorities, municipalities,
supranational
• organizations and government guaranteed entities;
• iv) Corporate bonds : mostly issues in foreign exchanges

19. Government Bonds
• Issuance of Danish government bonds and bills is
done by the Debt Management Office (DMO) which is
located under the Danish Central Bank.
• The DMO publishes its funding profile in December
and revises it at quarterly meetings.
• long-term rating of both local and foreign currency
debt by S&P, Moody‟s and Fitch is AAA/Aaa/AAA
with stable outlook.

20. Investor base
The investor base in Danish government bonds is well
diversified with life insurance companies holding around
40% of DKK-dominated government bonds. Foreign
investors account for around 30% and banks and public
funds own 15% each