September 26, 2012 / 10:17 AM / 5 years ago

Low returns hurt demand at German 10-year debt sale

LONDON (Reuters) - Germany failed to attract enough demand to meet its 5 billion euro target at a sale of 10-year bonds on Wednesday, as a record low rate of return deterred investors despite doubts over when Spain would seek a bailout.

German authorities had to pick up 36 percent of the debt after commercial banks bought just 3.951 billion euros of the issue, meaning the sale was technically uncovered. Uncovered auctions are not uncommon for Germany, but the scale of the Bundesbank retention was exceptionally high.

The bond offered a record low 1.5 percent interest rate.

The launch of the bond on September 5 also failed to attract enough bids to cover the amount offered.

"At face value it doesn't look like a good auction. Nominal bids fell short of the 5 billion target. So once again in technical terms it is a failed auction," said Michael Leister, a strategist at Commerzbank.

"Although, against the backdrop of the current environment and Bunds having rallied quite a bit over the past sessions, it's obviously not a good auction but also not a disaster."

Germany's safe-haven appeal has also been tarnished by the European Central Bank's pledge to buy bonds of struggling euro zone issuers, provided they seek aid, as part of its latest plan to curb the euro zone debt crisis.

Spanish Prime Minister Mariano Rajoy, who is facing increasingly violent protests against austerity measures, told the Wall Street Journal in an interview published on Wednesday that he was ready to seek a bailout if Spain's debt financing costs stayed too high for too long.

German Bund futures fell briefly to 140.69 from 140.78 just before auction result with cash 10-year yields 7 basis points lower on the day at 1.51 percent.

The 10-year yield has risen 40 basis points since European Central Bank President Mario Draghi vowed in July to do whatever it took to save the euro. He later unveiled measures in early August to buy the bonds of the bloc's struggling issuers.

Editing by Nigel Stephenson

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