Capital markets News

Government-owned KfW bank unveils €4 billion digital bond


State-owned German bank KfW has issued a €4 billion ($4.28bn) digital bond with a value date of 2 July. The benchmark bond is its second digital bond issuance via Clearstream using Deutsche Börse’s D7 digital securities platform. It’s a three year bond with a coupon of 2.75%.

“We are delighted to have successfully completed a second digital transaction, with a focus on further automating data generation and speeding up the issuance process, thus improving scalability,” said Tim Armbruster, Treasurer at KfW. “We thank Deutsche Börse for the constructive cooperation over the past months. It is important to us to provide key insights from the issuer’s perspective to contribute to the further digitisation of capital markets.”

The largest digital bond issuance

On the face of it, this is easily the largest digital bond, with the next biggest being Hong Kong’s $756 million green bond in February. However, some might argue that they are not the same because the ledger used for the KfW bond is entirely centralized, even though it is underpinned by Digital Asset’s smart contract DAML. DAML2 has the Canton DLT built in.

By contrast, the Hong Kong bond was issued on HSBC Orion’s DLT network. While Hong Kong’s Central Moneymarkets Unit (CMU) was the central securities depository (CSD) responsible for the issuance, other direct participants on the DLT can clear and settle atomically.

Germany’s digital securities legislation eWpG supports both centralized and decentralized digital depositories that use blockchain. Germany refers to the latter as “crypto securities”. In May we reported that KfW was planning a crypto securities issuance of a digital bond via Cashlink this summer.

While the Deutsche Börse D7 platform can potentially support both, so far it has only issued securities using the centralized depository. But it’s done a lot of them, particularly structured products for its client Vontobel.

“To date, D7 has processed more than 35,000 digital issuances across all financial instruments, totalling around €3.5bn, more than any other platform worldwide,” said Jens Hachmeister, Head of Issuer Services & New Digital Markets at Deutsche Börse. “With successful benchmark issuances like this one, D7 proves that it is the platform of choice for high-volume and high-scale digital issuances.”

We’re not sure if the figure is underestimated. It looks like more than 13,000 products may have been issued this month alone. Meanwhile, D7 is also used as part of the Eurosystem wholesale DLT trials for central bank money settlement.