First, government bonds play a key role in transmitting the monetary policy stance to the real economy via the so-called interest rate channel. In times when government bonds are considered as essentially risk-free and liquid instruments, a change in current and expected policy rates is a central factor in shifting the government bond yield curve.
Between 2009 and 2012, prices in large cities rose by almost 25%. And, in 2013, they increased by another 8.9%. Calculations by the Bundesbank already point to overvaluations in urban areas. Nevertheless, when looking at the German market as a whole, the situation seems less dramatic.