LONDON Oct 19 Germany saw poor demand for its
10-year bonds at an auction on Wednesday as a modest pick up in
equities hit appetite for safe-haven debt and low yields failed
to lure investors.
It was the second weak result in a row for Germany, with a
30-year bond sale last week also technically uncovered despite
chunky cash inflows from coupon and redemption payments.
Shares and the euro were higher, and German Bund futures
lower, before the sale on optimism policymakers will take major
steps at a weekend summit to resolve the euro zone debt crisis.
"It's a continuous story that we've had over the past couple
of weeks that if risk appetite is somewhat better we have very
weak demand for German auctions," said WestLB rate strategist
Bund futures extended losses after the auction, hitting a
session low of 134.32, down more than a full point on the day,
while 10-year yields in the secondary market were
10 basis points higher at 2.12 percent.
"Poor demand for expensive paper," said Annalisa Piazza, a
strategist at broker Newedge. "Market dealers seem to have been
more driven by valuations this time around."
But analysts said there was no threat to Germany's ability
to fund itself.
"I don't think it's a big worry for German credit
perception," said ING rate strategist Alessandro Giansanti.
"It's more a technical issue given the low level of yields
and no strong appetite to buy at those levels, especially when
you have some corporate bond issuance coming at a generous
discount with attractive yields."
Germany sold 4.075 billion euros in its final reopening of
the September 2021 bond, bringing the outstanding amount to 16
billion euros. A new January 2022 benchmark will be launched in
The bid/cover ratio at the sale was 1.1, below the 1.5 at
the previous sale in September and the 2011 average at 10-year
Bund sales of 1.61, according to Reuters data.
But with a target amount of 5 billion euros -- the
Bundesbank retained 0.925 billion euros -- the 4.55 billion
euros of bids drawn did not match the amount on offer.
The last 10-year auction deemed a technical failure was in
"Looking at the bid/cover and the fact that ... we're facing
an undersubscribed auction it shows that when risk appetite is
on the rise it's difficult for the Finanzagentur to find enough
demand out there," said WestLB's Leister.
Financial markets have been volatile in recent sessions, as
expectations of a swift decisive resolution to the euro zone
debt crisis rise and fall.
After German Finance Minister Wolfgang Schaeuble warned on
Monday that there would be no definitive solution at a European
Union leaders' summit this weekend, equities and other riskier
assets rallied on Wednesday on reports -- later denied -- that
an agreement had been reached to increase the firepower of the
euro zone's rescue fund .
Another gauge of investor appetit for euro zone governmnet
debt comes on Thursday when Spain and France come to market in
the wake of rating agency interventions.
Spain will sell up to 4.25 billion euros in bonds, after
Moody's became the third agency to cut the country's credit
rating in recent weeks .
France will also sell around 9 billion euros of conventional
and index-linked paper after Moody's warned its triple-A rating
could be at risk.
"I don't see a problem for (France) to issue bonds but we'll
likely see higher yields or a lower bid/cover, so expect to see
some pressure on the bonds tomorrow," said ING's Giansanti.