German Bond Yields and Debt Supply: Is There a “Bund Premium”?
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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.
Series:
Working Paper No. 2019/235
Subject:
Bond yields Bonds Financial crises Financial institutions Financial services Sovereign bonds Yield curve
English
Publication Date:
November 1, 2019
ISBN/ISSN:
9781513518329/1018-5941
Stock No:
WPIEA2019235
Pages:
34
Please address any questions about this title to publications@imf.org