The Information Content of the French and German Government Bond Yield Curves: Why Such Differences?

In this paper, we evaluate the information content of the yield curve as regards future interest rates and inflation in France and Germany. An original data set of long-term zero-coupon interest rates for French and German government bonds was constructed for the period 1980-97. Empirical evidence shows that the German yield curve has a significant information content about the future average change in short-term rates and the future path of inflation. The information content of the French yield curve is much more limited and is only relevant for the average change in short-term rates. We show that the difference between the results obtained for both countries mainly stems from lower variability in German risk premia than in French risk premia.