LONDON: Germany sold 4.01 billion euros of new 10-year government bonds on Wednesday, with a recent pick up in yields helping demand for the euro zone's lowest risk debt.
The 2023 bond drew bids worth 1.7 times the amount allocated, compared with 1.5 times at a sale of 10-year paper in November and an average of 1.39 times at auctions of 10-year Bunds in 2012.
The average yield was 1.56 percent compared with 1.4 percent in November and a 1.58 percent average at 2012 sales.
LATEST COMMENTS:
ANNALISA PIAZZA, MARKET ECONOMIST, NEWEDGE, LONDON
"The paper received good demand. The paper was priced at an average 1.56 percent, with no auction tail, further underpinning the robust demand at today's auction.
"We anticipated good demand at today's launch of the new 10-year Bund. Indeed, the recent sell-off and steepening of the curve left the new paper at relatively attractive levels. Uncertainties about the economic outlook and political risks continue to loom and today's auction results are a sign that market dealers still see some value in core EMU debt."
EARLIER COMMENTS:
MARIUS DAHEIM, STRATEGIST, BAYERISCHE LANDESBANK, MUNICH
"It was a good auction, it sold at six cents above the grey market. For me it was a little bit surprising because we are still in this low interest (rate) environment and for the last two weeks we've seen Bunds on the defensive. Only recently we've been seeing the market firm again.
"If we were at a yield of 1.20 percent then you'd see less demand but with a level of 1.55-1.60 it's not that extremely overpriced. A lot of market participants still have quite contrasting asset allocation where they are piling up risk assets because they get the yield there but still maintain a solid chunk of safe-haven investments."
PATRICK JACQ, RATE STRATEGIST, BNP PARIBAS, PARIS
"The bid/cover is above that in the previous auction, there is no tail so I would say the auction went relatively well. At current levels around 1.50 percent in 10-year yields we see investors (coming) back into core markets."
MICHAEL LEISTER, SENIOR STRATEGIST, COMMERZBANK, LONDON
"The auction looks all right... pricing looks decent. Overall a good auction but it doesn't come as a major surprise for us given that we've had this spike in outright levels and this new bond is trading in the 1.55-1.60 percent (yield) area on the grey market already. There was decent demand out there."
MARKET REACTION:
- Bund future up 8 ticks at 143.37 vs 143.29 before auction.
- German 10-yr Bund yield down 0.7 bps at 1.496 percent vs 1.50 percent before auction.
Table: See for full auction details.
BACKGROUND:
- German 10-year yields rose 23 basis points in early January to six-week highs around 1.62 percent in a sell-off triggered by a last-minute US deal to avert recession-inducing tax hikes and spending cuts and fading bets the European Central Bank would cut interest rates in the near term.
- Increasing investor concern that fresh US talks in coming weeks to raise its debt limit will prove tougher have lured back investors into low-risk debt, helping them regain some ground.
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