German Inflation-Linked Bonds: Overpriced, yet Undervalued

Jens Christensen, Sarah Mouabbi and Caroline Paulson

Working papers from Banque de France

Abstract: We document that German inflation-linked government bond yields contain a convenience or safety premium averaging 0.33 percent. Despite that, the German Federal Finance Agency decided to cease all future issuance of these bonds in November 2023. We examine the market response to this announcement and find that neither the safety premia nor the trading conditions of these bonds have been negatively impacted. Hence, this bond market remains a rich source of information on real rates in the euro area in addition to offering investors a safe inflation-protected asset.

Keywords: Affine Arbitrage-Free Term Structure Model; Financial Market Frictions; Convenience Premium; Safety Premium; Rstar (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 G12 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2025
New Economics Papers: this item is included in nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: German Inflation-Linked Bonds: Overpriced, Yet Undervalued (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1012

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