How to Buy German Government Bonds
Some investors seek to diversify their investment holdings by purchasing stocks and bonds from other nations, such as Germany. The federal government in Germany issues a variety of bonds throughout each year that are backed by the full faith of the German government. Germany, like much of Europe, uses the euro and German bonds are denominated in that currency. People in the U.S. and around the world can buy German bonds through licensed investment brokers.
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Instructions
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Call two or three investment firms or commercial banks in your area and ask to speak to an investment adviser. Ask the adviser what fees are involved in establishing a brokerage account to hold some German bonds. Bond transactions are not highly lucrative for brokers and some firms charge account fees and account activity fees to generate extra income from customers who only buy bonds. Determine which brokerage firm or bank investment department charges the lowest fees. Schedule an appointment with a licensed broker.
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Go to the broker's office. If you want to hold the funds in a joint account, you must bring the co-owner with you. You can add an account beneficiary to the account without that individual being present. Give the broker your driver's license or state issued ID card. The broker must ask you some questions to create a client profile. FINRA, the investment regulator, requires brokers to create a profile that details each customer's assets, personal information and investment time horizon. Sign the completed client profile and the brokerage account agreement.
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Ask the broker to tell you what German bonds are available for purchase. The German government issues bonds with terms ranging from three months to 30 years. Longer term bonds pay higher yields. Choose a bond or a variety of bonds to purchase. Write a check to the broker and instruct the broker to make the purchase. Ask for a transaction receipt. You do not take physical possession of the bond certificates but you can set up an online brokerage account to monitor your holdings on a daily basis.
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Tips & Warnings
To reduce your risk level you should ask your broker about bond mutual funds. There are many international bond funds that contain German bonds as well as bonds from other nations. Investing in a mutual fund reduces the default risk by spreading your investment across multiple bonds.
When you buy foreign bonds you expose yourself to currency risk. If the euro loses value against the dollar, your investment loses value with it. Due to currency fluctuations, foreign bonds are more volatile than U.S. issued bonds. Additionally, unlike some bonds issued in the U.S., earnings from foreign bonds are taxable at both state and federal levels.
References
- Securities and Exchange Commission: Opening a Brokerage Account
- Investing in Bonds Europe: Types of Bonds
- San Francisco Chronicle: German Government Bonds Rise on Growing Demand for Safest Assets Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/11/11/bloomberg1376-LBPM8R07SXKX01-6O2M0NNBLPHK6K4JHH5R8HPMPD.DTL#ixzz163adxanS
Resources
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