* Sale of 2044 German bond is technically uncovered
* Investors put off by record low yields
* Upcoming Italian debt auction seen limiting Bund sell-off
By Ana Nicolaci da Costa
LONDON, April 25 Bund futures fell on Wednesday
and some investors shunned a sale of new German 32-year bonds as
the relatively low risk they carry proved insufficient to
compensate for ultra-low returns.
Germany's 2.405 billion euro sale of new 30-year government
bonds drew fewer bids than the total volume offered, meaning
the sale was technically uncovered.
The bid-to-cover ratio of 1.1 was far below the 2.1 seen at
a top-up of 30-year paper in January and below the 1.8 that one
analyst said would have satisfied the market.
This was the second poor Bund auction in two weeks after a
10-year sale suffered the same fate, showing that investors may
be getting more picky about their safe-haven purchases.
"We are at very low levels of yields, particularly at the
longer end in Germany, and there is no domestic demand for this
sort of paper, so it was always going to be reliant on other
people to come in and pick it up. And at record low yield
levels, it always seemed a bit unlikely," Marc Ostwald,
strategist at Monument Securities said.
"Germany is the one which is probably going to keep on
delivering a lot of these 10- and 30-year auctions where
technically it's not covered."
The German Bund future was down 17 ticks on the day
at 140.45, having hit a session low of 140.19 after the auction
The 10-year German bond yield firmed 2 basis
points to 1.66 percent in the secondary market, while 30-year
yields rose 1.9 bps to 2.44 percent, still not far
from a record low of 2.337 percent hit in January.
The 2044 bond sold at an average yield of
2.41 percent, less than the 2.62 percent achieved at the 30-year
sale on Jan. 25. It carried a 2.5 percent coupon, the
lowest-ever on a German ultra-long bond.
"Investors aren't paid a real yield for these bonds. They
are holding Bunds to preserve their capital," said Nick
Stamenkovic, bond strategist at RIA Capital Markets.
"But the amount they sold was disappointing. At such low
yields, investors are reluctant to hold Bunds."
The moves lower in the safe-haven debt market came as
European stocks rose after forecast-beating corporate results
helped soothe investor worries over the earnings season.
But the downside for the Bund future was seen limited ahead
of the outcome of the Federal Reserve's policy meeting and
before a bout of more Italian supply this week.
Italy will offer up to 6.25 billion euros of bonds on
Friday, including five- and 10-year debt, after a sale of 8.5
billion euros in six-month treasury bills on Thursday.
"The Bund auction is just before the BTP auction in Italy on
Friday and usually we would expect some price concessions going
into this auction, which also helps the Bund future," Rainer
Guntermann, strategist at Commerzbank said, speaking before the
German auction results which he expected to be downbeat.
Italian 10-year yields were little changed at
at 5.67 percent, while the Spanish equivalent shed
3.2 bps to 5.84 percent.
Those yields moved sharply lower in early trade, with one
trader citing sizeable short-covering by a hedge fund.
The Federal Reserve resumes its two-day meeting later, with
its concluding statement expected to show the central bank is
slightly more upbeat on the economy but in little hurry to raise
Investors hoping for clues on the prospects of further
monetary easing by the U.S. central bank may be disappointed.