June 26, 2019 / 9:49 AM / 3 months ago

UPDATE 3-Austria prices first euro zone public debt sale below ECB deposit rate

(Adds final pricing, further detail)

By Abhinav Ramnarayan and Virginia Furness

June 26 (Reuters) - Austria on Wednesday became the first euro zone country to price a public sale of debt below the European Central Bank’s deposit rate, as expectations of more ECB stimulus and worries over the global economy push yields in the bloc to new lows.

The country’s debt management agency launched the sale of 3 billion euros of five-year bonds at 23 basis points below the mid-swap rate, translating to a yield of -0.435%. The deposit rate stands at -0.40%. It also announced a tap of a 100-year note.

Investor interest was high despite the unprecedentedly low rate.

“It’s completely uncharted territory. It’s never been seen before that a euro government bond prices through the deposit rate - and yet, the demand is going very well,” said a lead manager on the trade.

Other government-linked borrowers have priced bond sales below the deposit rate - French agency Cades this week priced a 250 million euro tap of its May 2023 notes at a yield of -0.462%.

But this is the first euro zone sovereign to do so, and that with a bond deal of a substantial size.

According to another lead manager, there was over 22.8 billion euros of demand for the five-year paper, allowing the leads to tighten guidance from around 19 basis points below mid-swaps initially to 23 bps below.

They also revised pricing lower for a tap of Austria’s outstanding debt maturing in 2117 with demand there exceeding 5.3 billion euros. That 1.25 billion euro issue priced at 48 bps over an outstanding Fed 2047 bond, translating to a yield of 1.171%.

“The idea is to inject more liquidity to bring it up to about 5 billion - and the DMO decided to come before the summer,” said the first lead manager ahead of pricing. “The market seems to be crazy, it’s an absolute issuers’ market.”

The ECB is widely expected to cut its deposit rate further this year to boost a moribund economy.

Bond yields have fallen to record lows across the bloc, with Austria one of several euro zone countries to see their 10-year borrowing costs drop into negative territory.

In September 2017, it became the first euro zone sovereign to sell a “century bond” publicly via syndication, placing a 3.5 billion euro 100-year note. That issue currently yields 1.43% .

Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, Nomura and UniCredit arranged the deal. (Reporting by Abhinav Ramnarayan and Virginia Furness; editing by Sujata Rao and John Stonestreet)

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