February 8, 2012 / 11:28 AM / 8 years ago

German 5-year bonds see less demand as risk appetite revives

BERLIN (Reuters) - A German sale of five-year bonds drew less demand on Wednesday than in a previous auction, reflecting reduced appetite among investors for safe-haven debt amid hopes that Greece will take the necessary steps to avoid a messy default.

The 3.293 billion euro sale of five-year notes, known as Bobls, drew bids for 1.8 times the amount on offer, compared with 2.8 at a similar sale in January.

The average yield on the 0.75 percent Bobl notes, which are due to mature on Feb 24, 2017, was 0.91 percent, in line with January.

“Not as strong a result as at the last sale but certainly adequate when viewed against the backdrop of the ongoing lack of yield advantage at the “true core” and the current glass-half-full risk on market moves in anticipation of a Greek deal,” said Richard McGuire, a rate strategist at Rabobank.

Echoing that sanguine view, Peter Chatwell, a strategist at Credit Agricole, said: “The auction appears to have been solidly bid with just a 1 cent tail. The cover ratio is lower than the previous auction but should not ring any alarm bells.”

“This is further evidence that there is structural demand for core 5-year paper despite the historically rich levels on the curve, which we mainly attribute to the huge amounts of ECB liquidity in the system.”

The euro hit an eight-week high and European shares rose on Wednesday as markets priced in a successful outcome to Greek debt talks, buoyed by hopes of further pro-growth moves by major central banks.

Demand at Germany’s longer-term bond sales this year has generally been solid, especially when compared with a run of auctions at the end of last year which failed to draw enough bids to cover the amount on offer.

The nearly half a trillion euros injected into the banking system by the European Central Bank has stoked this demand.

“The trust in the euro zone in Germany’s bonds is unbroken. Yet today’s auction also reflects the volatility of the markets, which are marked by uncertainty,” said German debt agency spokesman Joerg Mueller.

Mueller added that the result was “very good” for Germany, from an economic perspective, as the coupon was low.

Reporting By Brian Rohan and Sarah Marsh, Additional Reporting by the London Government bond desk, editing by Gareth Jones

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