## German Bond Yields and Debt Supply: Is There a “Bund Premium”?

_IMF Working Papers, November 1, 2019_

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## Bibliographic details
- Authors: Anne-Charlotte Paret, Anke Weber
- Published: November 1, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513518329.001

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### Summary
- Research question: Are Bunds special?
- Definition: The “Bund premium” is estimated 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.
- Main high-level findings:
  - A rise in the “Bund premium” is documented in the post-crisis period.
  - There is a negative relationship between the premium and the relative supply of German sovereign bonds.
  - The negative relationship is more pronounced for higher maturities and when risk aversion (proxied by bond market volatility) is high.
- Forward-looking expectation: German government debt supply is expected to remain scarce, with important implications for the ECB’s monetary policy strategy.

### Key empirical findings
- Bund premium: measured as convenience yield differential after adjustments for sovereign credit risk, liquidity, and swap market frictions.
- Time pattern:
  - Rise in the Bund premium in the post-crisis period.
- Supply–premium relationship:
  - Negative relationship between Bund premium and relative supply of German sovereign bonds.
  - Stronger effect for higher maturities.
  - Stronger effect when risk aversion is high (risk aversion proxied by bond market volatility).

### Policy implications and outlook
- Scarcity of German government debt supply is expected to persist.
- Important implications for the European Central Bank’s monetary policy strategy, given the special status and convenience yield of Bunds.

### Subjects and keywords (as listed)
- Subjects: Bond yields, Bonds, Financial crises, Financial institutions, Financial services, Sovereign bonds, Yield curve
- Keywords: bond premium, Bond Supply, bond volatility, Bond yields, Bonds, Bund premia, Bund yield, Central Bank Quantitative Easing, convenience yield, debt supply, demand curve, Global, government bond yield, long-term debt, Sovereign Bond Yields, Sovereign bonds, WP, Yield curve

*IMF Working Papers — Anne-Charlotte Paret and Miss Anke Weber, November 1, 2019.*

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_Source: https://www.imf.org/en/publications/wp/issues/2019/11/01/german-bond-yields-and-debt-supply-is-there-a-bund-premium-48730_