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UPDATE 1-German sale finds buyers despite U.S. fiscal deal
January 2, 2013 / 11:31 AM / 5 years ago

UPDATE 1-German sale finds buyers despite U.S. fiscal deal

* Schatz sale finds buyers despite greater risk appetite

* U.S. fiscal deal limits demand as riskier assets rally

* Auction yield positive for the first time since October

By William James

LONDON, Jan 2 (Reuters) - Germany sold 4.15 billion euros of bonds on Wednesday, kicking off its 2013 funding with a two-year debt sale that found buyers despite an overnight U.S. budget deal that stirred appetite for higher-yielding assets.

The bonds were sold at a positive yield for the first time since October, and the volume of bids was lower than at recent sales, reflecting reduced demand for German debt which is used as a safe haven in times of market stress.

While the auction was comfortably covered, average yields were 0.01 percent compared to the average of -0.015 percent at the two previous auctions of the 2014 bond.

German bonds fell steeply in the secondary market on Wednesday after U.S. lawmakers approved a last-minute deal to avert an imminent fiscal crisis that would have tipped the world’s largest economy into recession.

“It looks all right... yields in positive territory certainly helped to generate some demand but bid/cover ratio of 1.5 is indicating the ‘risk on’ sentiment from (the deal to avoid) the fiscal cliff prevented a better outcome,” said Michael Leister, senior strategist at Commerzbank in London.

The auction of drew bids worth 1.5 times the amount allocated to investors, below the 1.9 ratio seen at two sales of the same bond late last year.

While affected by the increased appetite for riskier and higher-yielding assets, the auction confirmed that investors see interest rates in Europe staying low over the long term, and are still prepared to accept an ultra-low yield in return for a safe place to store their cash.

The German authorities retained 17 percent of the amount issued for sale at a later date, above the average of the previous two auctions but in line with historical levels.

“All in all, today’s German auction was ‘average’ but demand was much less dynamic than in the previous three two-year taps,” said Annalisa Piazza, market economist at Newedge.

Analysts also cited the redemption of a 24 billion euro German bond on Friday as a supportive factor for the auction.

The 5 billion euros of debt issued, including the portion retained by authorities, was Germany’s first step towards a target of 173 billion euros of long-term nominal bonds it plans to sell this year.

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