German Bond Yields and Debt Supply: Is There a “Bund Premium”?

November 1, 2019

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Format: Chicago

Anne-Charlotte Paret, and Anke Weber. German Bond Yields and Debt Supply: Is There a “Bund Premium”?, (USA: International Monetary Fund, 2019) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Are Bunds special? This paper estimates the “Bund premium” as the difference in convenience yields between other sovereign safe assets and German government bonds adjusted for sovereign credit risk, liquidity and swap market frictions. A higher premium suggests less substitutability of sovereign bonds. We document a rise in the “Bund premium” in the post-crisis period. We show that there is a negative relationship of the premium with the relative supply of German sovereign bonds, which is more pronounced for higher maturities and when risk aversion proxied by bond market volatility is high. Going forward, we expect German government debt supply to remain scarce, with important implications for the ECB’s monetary policy strategy.

Subject: Bond yields, Bonds, Financial crises, Financial institutions, Financial services, Sovereign bonds, Yield curve

Keywords: Bond premium, Bond Supply, Bond volatility, Bond yields, Bonds, Bund premia, Bund yield, Central Bank Quantitative Easing, Convenience yield, Debt supply, Demand curve, Global, Government bond yield, Long-term debt, Sovereign Bond Yields, Sovereign bonds, WP, Yield curve

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/235
Stock No:

WPIEA2019235
ISBN:

9781513518329
ISSN:

1018-5941

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