Greek aid delay spurs demand at German debt sale

LONDON/BERLIN Wed Nov 21, 2012 1:23pm EST

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LONDON/BERLIN (Reuters) - A sale of German 10-year bonds on Wednesday drew solid demand as the failure of Greece's international lenders' to release aid for Athens led investors to seek safety in low-risk assets despite meager returns.

Euro zone finance ministers, the International Monetary Fund and the European Central Bank failed for a second week to reach a deal, after 12 hours of talks that ended early on Wednesday. [ID:nL5E8ML4G3] Negotiations resume on Monday.

Investors bought 3.25 billion euros of the bond, which pays a 1.50 percent interest rate. The sale drew bids worth 1.5 times the amount allotted, unchanged from a similar auction in October but above an average of 1.38 times at this year's 10-year sales.

The bond sold at an average yield of 1.4 percent, in line with the secondary market but below 1.56 percent last time.

For full auction details see [ID:nEAP50MLA6]

"Given that yields have fallen recently this suggests that investors still (see) the safe-haven allure of the German government bonds given all the uncertainty in Greece," Nick Stamenkovic, a rate strategist at RIA Capital Markets, said.

German Bund futures were up nine ticks on the day at 142.47 from 142.45 before the auction while 10-year yields were 0.6 basis points lower at 1.41 percent, unchanged from before the sale.

Prices for German debt, the safest in the euro zone, have steadily fallen since mid-October as investors have turned nervous over clashes between euro zone finance ministers and the IMF over how to make Greece's debt sustainable.

Uncertainty over when Spain, at the forefront of the euro zone debt crisis until Greece took centre stage, will request external aid has also supported demand for safe-haven debt.

German 10-year yields fell as low as 1.31 percent last week, some 20 bps from record lows hit in July, and two-year yields turned negative earlier this month.

(Editing by Nigel Stephenson)

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