From 2024: No more inflation-linked bonds from the federal government
The federal government is withdrawing from the market for inflation-linked bonds. As of next year, no more inflation-linked federal securities are to be issued or already outstanding securities increased, the Federal Finance Agency announced.
The currently outstanding linkers, as the securities are also known, can still be traded on the market. According to the Finance Agency, the remaining volume comprises four securities 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 hedge against inflation risks. They therefore protect the capital invested to a certain extent against inflation, which is currently much higher than in the past decade. As a result, linker bonds have 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, the economic advantages of inflation-indexed German government securities as an additional financing instrument are counteracted by the associated risks." This applies both to planning security and to the risk of high financing costs for the federal government in individual years.
According to Diemer, around 3.5 percent of outstanding German government securities are currently linked to inflation. In recent years, the linker's share of the annual new issue business has only been between 1.0 and 1.6 percent. "We therefore do not expect any significant market reaction from the discontinuation of linker activities."
The decision to halt the issuance of inflation-linked bonds by the federal government from 2024 may impact investors' strategies regarding finances, as they will no longer be able to invest in new federal securities linked to inflation. Amidst this change, the existing inflation-linked bonds, or linkers, remain tradable on the market, offering an opportunity for investors to manage their finances around inflation risks.
Source: www.dpa.com
