France’s 15-year breakeven rate, a gauge of the consumer-price outlook derived from the yield gap between regular and index-linked bonds, is at 2.24 percentage points today, compared with 1.99 percentage points a year earlier. The 30-year U.S. rate increased to 2.55 percentage points from 2.16 during the same period, while the U.K. 30-year gap widened to 3.26 percentage points today from 3.20.
“To be fair to Germany, a number of things had happened soon after it first sold index-linked bonds that made it rather difficult to issue 30-year linkers,” said Markus Heider, the head of inflation research at Deutsche Bank AG in London. “We had the financial crisis followed by the euro debt crisis. People were more worried about recession than inflation. You can make an argument that the market conditions and valuations have improved. It’s a better time to issue such bonds.”
Germany’s longest-maturity inflation debt is repayable in April 2023. While the country has one of the world’s most traded bond markets, it has 55 billion euros ($73.5 billion) of index-linked securities, compared with 173 billion euros in France and 290 billion pounds ($465 billion) in the U.K.
Italy had its inflation securities removed from Barclays Plc’s indexes in July after Moody’s Investors Service cut its credit rating, making investors using those indexes to track performance less likely to buy its bonds.
“If Germany wants to be a benchmark issuer in the index- linked bond market, it will need to issue 30-year securities,” said Kari Hallgrimsson, the head of European inflation trading at JPMorgan Chase & Co in London. “We have heard of strong interest for long-dated German linkers from pension funds in Scandinavia, the Netherlands and Germany. The market will take it very positively.”
German Finance Minister Wolfgang Schaeuble said Jan. 11 that the euro region is over the worst of the crisis. Draghi cited “positive contagion” in European markets after the central bank left its benchmark rate at 0.75 percent on Jan. 10, telling reporters that “a gradual recovery should start” in late 2013.