LONDON: Five-year German bond yields hit a new record low on Wednesday after an auction that drew fewer bids than the amount on offer but which analysts said was not as negative as it appeared.
Germany sold 3.971 billion euros of new five-year Bobl notes at what was the fifth technically uncovered auction of its kind.
Technically uncovered auctions are not uncommon in Germany, where debt sales often depend on investor interest on that particular day, rather than underlying demand for German debt, which is seen one of the safest assets in the world.
While yields at the auction were 6-7 basis points above secondary market levels, the lack of post-auction selling suggested that a majority in the market believed total bids of 4.745 billion euros for such low yields was acceptable.
"It is another technically uncovered auction but digging deeper into the details, it's far less negative than it seems," Commerzbank rate strategist David Schnautz said.
"Record low yields don't appear to be giving people a headache and at the margin the auction is supportive for the ECB to do what is currently expected, which is a 10-basis-point cut in the deposit rate next month."
Five-year German bond yields were 3 basis points lower at -0.33 percent, below levels seen before the auction and the ECB's deposit rate of -0.30 percent.
German two-year yields also touched a new record low at -0.50 percent as weak equity markets and speculation about further monetary easing from the ECB continued to underpin demand for bonds.
The ECB has signalled that it is likely to ease monetary policy again next month to boost inflation and protect the euro zone economy from global market turmoil.
The Bank of Japan's decision last week to cut interest rates into negative territory has cemented a view that the ECB will lower its deposit rate by another 10 bps in March.
Money markets are fully pricing in such a move as well as a further 10 bps cut by July or September.
"The Bank of Japan has lowered (the floor) for the ECB," Mizuho strategist Peter Chatwell said.
Ten-year euro zone yields were all 2-5 basis points lower on the day, with peripheral yields reversing early rises.
Analysts said a 9 billion euro sale of new 30-year bonds by Italy had put some pressure on bond yields in southern Europe. Spain sells 10-year and 20-year bonds on Thursday.
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