* Five-year German bond auction draws strong bids
* U.S. fiscal cliff worries make for conducive backdrop
* Recent yield rise makes current issue attractive
By William James
LONDON, Nov 28 Investors bought 2.51 billion
euros of five-year German debt on Wednesday at an auction that
drew strong demand as a lack of progress in U.S. budget talks
lifted appetite for safe-haven assets.
Combined with a recent rise in yields, the prospect of
recession-inducing spending cuts and tax hikes in the United
States kept appetite for low-risk German debt high, creating a
conducive backdrop for the auction.
"It was a good auction. It was well-covered at a decent
premium," said Artis Frankovics, strategist at Nomura in London.
"Today we had slightly risk-off sentiment because of the
U.S. on concern over the fiscal cliff and that certainly helped
The average yield at the sale was 0.41 percent, some 7 basis
points above the lowest levels at which the benchmark bond
changed hands in the market earlier this month.
Demand for German debt has been falling over the past seven
trading days, pushing yields higher, as Greece edged towards,
and finally secured, a deal to release aid funds.
However, for those investors who remain risk averse or need
to hold high-quality, low-risk assets on their balance sheet,
the rise in German yield encouraged buying at the auction.
"The recent 'sell-off' in the five-year segment since
mid-November might have attracted demand from dealers who are
betting on (there being) another leg (in) the rally in Bunds by
year end," said Annalisa Piazza, market economist at Newedge.
Investors bid for 1.9 times the amount allotted, above the
1.5 times at the last sale, on Nov. 7, and an average of 1.7
time for the three previous sales of the bond.
The German authorities retained a below-average 16.4 percent
of the 3 billion euros issued and will sell the remaining bonds
into the secondary market over time.
The sale was the last of the October 2017 bond, adding a
scarcity value which also contributed to demand.
Germany has raised over 98 percent of its targeted 184
billion euros for 2012, with a final bond sale due next week.