* Investors snap up 3.36 bln euro of 10-year German Bunds
* Yields lowest at auction since July 2012
* German sale follows solid demand at Dutch 10-year sale
By Emelia Sithole-Matarise
LONDON, March 20 Investors snapped up 3.36
billion euros of 10-year German bonds on Wednesday, driven into
the euro zone's lowest risk debt, after Cyprus rejected the
terms of a bailout needed to avoid default.
Efforts to rescue the island were thrown into disarray on
Tuesday after its lawmakers rejected a levy on bank deposits
that was among the conditions for a 10 billion euro European
Although market reaction to the crisis has been relatively
muted, with investors believing a solution will eventually be
found, investors still worry that considering penalising savers
as part of a bailout sets a precedent and could reignite the
bloc's debt crisis.
But without a solution, Cyprus risks default and a banking
These concerns spurred demand for the least risky government
bonds, despite their low yields.
The German bond sale drew bids worth 1.6 times the amount
allotted to investors compared with 1.2 times when the paper was
sold in February and a 1.45 average at this year's auctions. It
was sold at an average yield of 1.36 percent, the lowest at
auctions since July last year. For details see
"Investors are prepared to park their funds in Bunds near-
term because of the uncertainty in Cyprus and the limited
options they have. That certainly is reflected in today's
healthy demand," said Nick Stamenkovic, a rate strategist at RIA
Bund futures, which had been lower all day, last
traded at 144.35, down 27 ticks. German 10-year yields
held steady at 1.37 percent in the secondary
market, two basis points up.
The 10-year yield fell as low as 1.34 percent on Tuesday,
its lowest so far this year, and two-year yields briefly turned
negative for the first time since January as investors sought
refuge in one of the region's most liquid assets.
"The cheapening that we've seen this morning combined with
the ongoing fear about Cyprus contributed to ... a good result
despite yields trading close to the year's lows," said Michael
Leister, a rate strategist at Commerzbank.
The German auction followed a strong sale on Tuesday of a
new Dutch 10-year bond that raised 6.52 billion euros, above the
Dutch Treasury's initial target of 5 billion.