There are currently three inflation-linked German Government securities in circulation: two ten-year Federal bonds and a five-year Federal note. These new financing instruments account for over 3% of the Federal Government’s debt portfolio in 2010.
The issuer’s long-term aim is to build up a full curve of real-yield German Government securities. Similarly to the issuance patterns for nominal-yield securities, the strategy in the inflation-linked market is for initial placements in benchmark volumes to be followed by smaller reopenings. The Federal Government also conducts secondary market operations to support market liquidity in these securities. The Federal Government’s entry into this market segment in 2006 is linked to the longer-term expectation of a reduction in interest costs. It was also aimed at broadening the investor base, increasing financing flexibility, and extending the spectrum of securities offered to investors.
Primary Market
Based on prevailing market conditions the Bund will continue the development of its Linker segment with an issuance volume in the range of between € 3 to 4 bn quarterly. The timing of new issues is dependent on market conditions and are therefore announced separately to the issuance calendars. Issues in the primary market are placed chiefly by auction.
Secondary Market
The three securities currently in circulation in the secondary market have a combined volume of € 29 billion, and account for more than 3% of German Government securities currently outstanding.
A comparison of the turnover in real-yield and nominal German Government securities demonstrates that liquidity in inflation-linked instruments has risen continuously since they were first issued. Their turnover as a percentage of the most actively traded nominal German Government securities (volume coefficient) has also converged.
