Germany is surprisingly withdrawing from the market for inflation-protected bonds, so-called “linkers”. From 2024 onwards, no further federal securities linked to the inflation rate will be issued, the finance agency responsible for federal debt management announced on Wednesday.
Papers that have already been issued should also no longer be increased. “The currently outstanding inflation-indexed federal securities will continue to be tradable on the market,” it said at the same time. The remaining program includes four papers with a total volume of 66.25 billion euros and remaining terms of between around two and a half and 22.5 years. Around 3.5 percent of outstanding federal securities are linked to inflation.
With the “Linker” the interest payment is based on the rate of inflation. This means that the issuer – in this case the state – takes on the inflation risk that would otherwise lie with the investor. LBBW analyst Jens-Oliver Niklasch suspects “that the linkers are no longer attractive for issuers in times of high and volatile inflation.”
“Inflation-indexed bonds always pose a risk to the federal budget – so to reduce the risk, ending such issues is certainly the right thing to do,” said Nord LB expert Bernd Krampen. Instead, the federal government now wants to rely more on conventional and so-called green bonds, which serve to finance environmentally friendly spending.