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Germany Seeks Savings With First Collateral on Rate Swaps 

July 8, 2014
Brian Parkin, Rainer Buergin, Bloomberg Businessweek

Germany’s debt management agency is set to pledge collateral against some of its derivatives trades for the first time in a sign even Europe’s safest borrowers see scope to cut transaction costs with guarantees.

The Federal Finance Agency, which manages the Finance Ministry’s budget and short-term liquidity funding, plans to increase savings on the interest-rate swaps it currently uses by offering collateral on as much as 8 billion euros ($10.9 billion) of the trades as early as next year, agency spokesman Joerg Mueller said July 5 by phone. The agency may at the same time opt to use a central derivative clearing house in London and appoint a company such as Eurex Clearing AG to settle the transactions, he said.

While Europe’s benchmark issuer has leaned on its AAA credit rating to avoid posting collateral on its debt in the past, buyers of one-way collateralized swaps and regulators are demanding more guarantees to limit risk. German lawmakers, in a revised 2014 budget on June 27, approved the backstops that can be transacted from next year.

Read more: Businessweek

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