The prospect of an economic rebound midwifed by Mario Draghi’s successful calming of the European bond market may finally prompt Germany to sell 30-year inflation-linked government debt.
Draghi’s European Central Bank forecasts the euro region will rally from recession in 2013, while European Union leaders say the worst of the debt crisis is over. The prospect of those forces stoking inflation is sharpening investor appetite for a top-rated, long-dated security after France’s rating downgrade left the region without a AAA index-linked security with more than 10 years to maturity.
“We are likely to be a buyer of German 30-year index-linked debt if they offer,” said Robin Marshall, a fixed-income director at Smith & Williamson Investment Management in London, which oversees the equivalent of $19 billion. “Inflation may not be a threat in the euro zone now, but I would like to be able to express a longer-term view on that without having to take a credit risk. At the moment, it’s not easy to do that.”
Germany came late to the inflation market, selling its first bonds linked to consumer prices in March 2006. The U.K. issued inflation-protected securities in 1981, with France tapping the market in 1998 and Italy debuting in 2004. The debt is designed to keep its value when consumer prices rise.
Gerhard Schleif, the former head of Germany’s Federal Finance Agency, said in 2007 that 30-year linkers might appear that year. Carl Heinz Daube, who took over in 2008, reiterated the government’s intention to sell the securities. Daube stepped down today. He is being replaced by Tammo Diemer, with investors still awaiting the first sale.
“We will continue to monitor the market situation,” Joerg Mueller, a spokesman for the debt agency, wrote in an e-mailed response to questions last week. “Our entry into this market segment in 2006 was linked to the longer-term expectation of a reduction in interest-rate costs. It was also aimed at broadening the investor base, increasing financial flexibility and extending the spectrum of securities offered to investors.”
Long-term inflation expectations have risen in G-10 countries on speculation the global economy will grow at faster pace than last year. Global output will expand 2.4 percent this year and 3.17 percent in 2014, according to a median forecast of economists surveyed by Bloomberg.