BERLIN, Aug 18 - Germany should keep its benchmark euro zone government debt status despite some recent slippage in the premium investors are prepared to pay for its bonds, the Bundesbank said in its monthly report on Monday.
"The narrowing of Germany's interest-rate advantage is probably due to the tense situation of public finances and the discussion about how to finance the acceleration of the third step of the tax reform," the Bundesbank wrote, referring to plans to bring forward tax cuts by one year to 2004. "Nonetheless, German bonds should keep their benchmark status in the euro debt market. This is because of the liquidity of the secondary market and also especially the role the Bund future plays as the most important interest rate futures contract in the euro area," it added. French debt yields, which had been higher than German Bunds, have now fallen to same level. On July 8, French 10-year OAT yields even traded two basis points below Bunds .//