While data today showed growth in Germany slowed to 0.7 percent last year from 3 percent in 2011, there were positive signs for the economy. The country’s business confidence rose for a second month in December, unemployment held close to a two-decade low, and industrial production and retail sales increased in November. Financial markets also recovered at the end of last year, with the benchmark DAX index gaining 11.5 percent since mid-November.
The yield on 15-year French index-linked bonds has fallen to about 0.50 percent from 1.39 percent at the end of June, underlining demand for long-dated inflation securities. German securities due in April 2023 yielded minus 0.20 percent, compared with 0.01 percent in mid-2012.
The German debt agency may have to prove to the government that adding a new line of debt is cheaper than selling regular securities, said Paul Mueller, a money manager at Invesco Asset Management in London. It also may be concerned about potential changes in the pension fund industry reducing demand.
“Pension regulations may present a risk, but at the end of the day, the size of the euro-region’s index-linked market is relatively small,” Mueller said. “Investors still need long- dated inflation protection and they don’t have many sources to go to in the euro region. German 30-year inflation bonds will have a great appeal to investors.”
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