Germany plans inflation-linked bond issue

German pension funds have been reflecting on the news that Germany plans to issue its first-ever inflation-linked bonds in the near future.
The government’s treasurer, Finanzagentur, has confirmed the plans. It did not say when the bonds would be sold, only that the government had empowered it to do so in the federal budget for 2006. It added that, in a departure from normal practice, it would have banks underwrite the sale.
“We want to link the bonds to European inflation so that we can attract international investors. We don’t know the investor base, so we need the support of banks,” Finanzagentur head Gerhard Schleif said in a recent interview.
Experts say inflation-linked bonds, which have a maturity of at least 10 years, are attractive to liability-driven investors like pension funds, because they aim to protect initial investment volumes from the effects of inflation.
But two major German pension funds say they did not have inflation-linked bonds in their portfolio and have no immediate plans to buy them.
A spokesman for Munich-based Bayerische Versorgungskammer, Germany’s largest pension fund with €30bn in assets, says that at this time the bonds were not interesting from an interest rate perspective.
“We are, however, watching events closely and we might change our position if the interest rate situation changes,” he adds.
Dirk Lepelmeier, managing director of Nordrheinische Ärtzeversorung, a €7.5bn medical pension fund based in Düsseldorf, says his fund had already protected itself against inflation.

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