German banks are shifting towards lower-risk sovereign bonds from low-inflation countries, in line with the changing risk perceptions in bonds markets, according to a discussion paper published last week by the Deutsche Bundesbank.

Banks and Sovereign Risk: a Granular View, by Claudia Buch, Michael Koetter and Jana Ohls, analyses the sovereign debt exposures of German banks.

The authors find that larger, weakly capitalised banks hold more sovereign bonds than their smaller, stronger counterparts