LONDON (Reuters) - Germany sold 3.19 billion euros of 10-year government bonds on Wednesday but demand fell short of the sales target of 5 billion euros.
As at the launch of the bond on September 5, the auction was technically uncovered. Bids were worth 1.2 times the amount allotted to investors, compared with 1.1 times at the debut sale.
The average yield was 1.52 percent, above the 1.42 percent at the launch but above a 1.61 percent average at 10-year bond auctions so far this year.
“Surprisingly, a very weak auction result, technically uncovered, given the current risk off environment in which there is ongoing speculation about when Spain will be forced into a bailout and that the ESM may not deal with legacy problems with regards to recapitalizing banks.”
NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH
”Pretty sluggish. It clearly shows investors were reluctant to bid at those yield levels ... Bund yields dropped quite sharply in the past few days.
“Over the medium term, if the ECB measures begin to work and there is more movement towards a political union, yields could rise. But for the moment safe-haven flows dominate and the auction may (only) take the shine off Bunds a bit.”
”All in all, very poor demand for the German long end of the curve. For the second straight month, bids were below total size and tail was large versus historical average.
“In relative value terms, the Sept-22 looked rich versus previous rolls. However, we suspect there are other factors behind today’s poor demand. Dealers might see limited upside for German debt in the coming weeks, pricing in a sort of smooth-ish resolution of the EMU debt crisis.”
”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. 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.
“It’s similar to what we’ve seen at a bill auction earlier this week where the finance agency explicitly stated that they don’t make any price concession, or are not willing to make large price concessions.”
- Bund future up 84 ticks at 140.90 vs 140.80 before auction
- German 10-year yield down 7.2 bps at 1.518 percent vs 1.527 percent before auction.
- German 10-year yields have risen more than 40 basis points from euro-era lows around 1.13 percent reached in July, after ECB President Mario Draghi vowed to do whatever it took to preserve the euro, later backed by a new bond purchase scheme.
- However, uncertainty over when Spain will seek a bailout, necessary to activate the ECB scheme, has underpinned demand for safe-haven Bunds.
- For weekly debt supply outlook, click <EURODEBT/O>
Reporting by William James, Marius Zaharia, editing by Nigel Stephenson