Starting next year, the Federal Finance Agency will no longer issue any new federal securities linked to inflation. These bonds offered investors protection against inflation risks.
The federal government is withdrawing from the market for inflation-indexed bonds. From next year onwards, no further federal securities linked to inflation will be issued or securities already outstanding will be increased, the Federal Finance Agency announced.
The currently outstanding linkers, as the papers are also called, can still be traded on the market. According to the finance agency, the remaining volume includes four papers with a current total volume of 66.25 billion euros. The remaining terms are between around 2.5 and 22.5 years.
With inflation-indexed bonds, investors can at least partially protect themselves against inflation risks. They protect the capital invested to some extent against the devaluation of money, which is currently much higher than in the last decade. Accordingly, linker bonds had a rather shadowy existence for a long time. However, their relevance has increased in recent years.
Tammo Diemer, managing director of the finance agency, told the “Börsen-Zeitung”: “In the long term, from the state’s perspective, the economic advantages of inflation-indexed federal securities as a further financing instrument will be counteracted by the associated risks.” This applies both to planning security and to the risk of high federal financing costs in individual years.
According to Diemer, around 3.5 percent of outstanding federal securities are currently tied to inflation. In recent years, the share of linkers in the annual new issue business has only been between 1.0 and 1.6 percent. “We therefore do not expect any significant market reaction as a result of the discontinuation of linker activities.”
Source: Stern
