* Germany sells 3.27 billion euros of five-year bonds
* Demand reinforced by recent sharp rise in yields
* Euro zone worries add to caution, support demand
By William James
LONDON, Feb 6 Germany sold 3.27 billion euros of
five-year bonds on Wednesday, drawing strong demand from bidders
with a preference for low-risk assets and attracted by a recent
sharp rise in yields.
The bonds sold at a yield of 0.68 percent, some 15 basis
points higher than when the issue was launched in early January,
thanks to a broad selloff in German debt caused by rising money
market rates and receding fears over the euro zone debt crisis.
Nevertheless, analysts said demand for the paper was strong
after the rise in yields had made the paper more attractive and
a re-emergence of political risks in the region's periphery had
turned some investors more cautious.
"It seems very positive. They got huge demand helped by the
sell-off that we've seen recently in Germany, especially in the
five-year sector," said Alessandro Giansanti, strategist at ING.
"There is also some tension (in the market) ... political
risk in Italy and Spain is driving money out of the periphery
into core assets and this could be another factor supporting the
Bids for the bonds were worth 1.9 times the amount allocated
-- higher than at the bond's previous sale and stronger than the
average across the past five sales of equivalent German debt.
Five-year German yields have more than doubled
this year as investors sold low-yielding but safe bonds they had
bought to hedge against an escalation of the euro zone crisis
and put the money into assets with higher returns.
Larger than expected repayments of the European Central
Bank's long-term banking loans in late January also hit
shorter-dated German debt as investors priced in a steeper rise
in money market rates over the coming year.
But the safety and liquidity of German debt remain
attractive for risk-averse investors spooked this week by a
corruption scandal in Spain and uncertainty over an Italian
election due later this month.
"Does it offer great value at 0.68 (percent)? To some
extent, yes," said Marc Ostwald, strategist at Monument
Securities in London.
"If you are worried now that markets are perhaps waking up
to some of the realities that euro zone risks have not suddenly
evaporated... then probably you want to be looking at the
safe-havens on a back-up in yield."
Analysts said auctions of five-year German paper were
typically supported by central banks who prefer short-maturity
holdings and real money funds who need to match investment