Anecdotal evidence suggests that a surge in demand for OATi originated from banks, which tried to hedge against this new regulation. An insufficient outstanding amount of French inflation linkers relative to the overall demand for hedging purposes led to an upward pressure on the prices of other euro area linkers (Greece and Italy). To conclude this point, all these biases are likely to be small, but they add together, potentially in a non-systematic way. They are also likely to vary over time. It is therefore difficult to smooth out all these noises to get a good proxy of inflation expectations over the medium to long-term. Two main lessons may be drawn from the existence of the various premia and biases affecting the break-even inflation rates. First, it may be more informative to focus on the changes in the break-even rates rather than on their levels. This is however at a cost since the level by itself conveys relevant information for the central bank. Second, break-even inflation rate may provide interesting information as regards long-term inflation expectations, although it is necessary to cross-check against other inflation expectations’ measures. This leads me to my third and final point. 3. Other useful indicators of expected inflation  Inflation-indexed bonds are not the sole financial instrument to provide information on long-term expectations of inflation, as similar information can be extracted from inflation-linked swaps. The market for inflation-linked swaps has developed rapidly since 2002 in the euro area.
Second, inflation expectations may be used by policy makers to gain information about the setting of short-term interest rates, whereas changes in the nominal yield curve, on their own are of no use. An increase in long-term nominal interest rates may be driven by a rise in the long-term expected inflation rate or a rise in the inflation risk premium, but it may also reflect an increase in long-term real interest rates, driven by some real factors. The two first movements could justify a change in the monetary policy stance, once the nature of the underlying shock and its likely duration have been clearly identified, but such a change may be inappropriate in the last case. Third, information on long-term inflation expectations can provide monetary authorities with a measure of the credibility of their commitment to price stability. The existence of a market for inflation-indexed securities may provide central banks with very useful information, since it may then enable them to identify whether changes in nominal yields mainly reflect changes in the expected long-term inflation rate or rather whether they are due to changes in real yields.