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

35 Pages Posted: 3 Dec 2019

See all articles by Anne-Charlotte Paret

Anne-Charlotte Paret

International Monetary Fund (IMF)

Anke Weber

University of Cambridge

Date Written: November 2019


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.

Keywords: Financial crises, Sovereign credit ratings, Economic policy, Financial institutions, International financial markets, Sovereign Bond Yields, Bond Supply, Central Bank Quantitative Easing, WP, premia, Bunds, risk aversion, euro area, arbitrageur

JEL Classification: E43, F30, G12, G15, E01, E52, G21, F16, O24

Suggested Citation

Paret, Anne-Charlotte and Weber, Anke, German Bond Yields and Debt Supply: Is There a 'Bund Premium'? (November 2019). IMF Working Paper No. 19/235, Available at SSRN:

Anne-Charlotte Paret (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Anke Weber

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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