End of Linker Issuance Due To Excessive Tail Risks

The German Federal Ministry of Finance is quoting an unfavouable risk-reward tradeoff as well as limited market demand as reasoning for the previously announced end to issuance of inflation-linked securities, mirroring MNI's expectations.

• The ministry noted that the cost risk of linkers in high inflation periods materialized in the last two years, and that the tail risk of similar events happening in the future should not be disregarded, leading to issues from a planning security and financing cost perspective.
• Additionally, the ministry noted that, even compared to the Green Bund segment, linkers only played a minor role in the market of German fixed income securities due to limited investor demand, and that subsequently, liquidity levels stayed notably below comparable nominal interest-bearing German government securities.
• As announced before, previously issued linkers will continue to be tradable in the market and will not be withdrawn.