LONDON: German bond yields held near record lows on Wednesday with analysts predicting high demand for the sale of new debt eligible for the European Central Bank's purchase programme.
Limits imposed by the ECB on its quantitative easing scheme have shrunk the number of German bonds it is able to buy, while the country's commitment not to add to its overall debt stock this year has also stoked fears of bond scarcity.
A combination of these factors has pushed German yields to new lows. They recorded their fifth straight quarter of falls on Tuesday amid a turnaround in demand after a fairly lacklustre 2014.
"QE has certainly had a positive effect on German bond auctions and that has to continue," said KBC strategist Piet Lammens.
"Investors know that the ECB has to buy a lot of German bonds, so they can be certain they can sell these on."
German 10-year yields were unchanged at 0.19 percent on Wednesday, not far from their record low of 0.165 percent .
Commerzbank has calculated that 14 percent of German bonds with maturities above two years have yields below -0.20 percent, the ECB's deposit rate which marks the lower limit for its purchases.
COMPETITION INTENSIFIES
The auction of Bunds maturing in April 2020 on Wednesday will be eligible for purchase by the ECB, however, while a 19 billion euro redemption of a German bond next week also means investors have to find a new home for that cash.
"The competition... looks set to intensify with auctions representing an increasingly important source of acquiring paper," said Commerzbank strategist Michael Leister.
Germany will sell up to 4 billion euros of new paper on Wednesday.
Demand for the bloc's top-rated debt is also being underpinned by uncertainty over whether Greece and its creditors will be able to come to an agreement over the reforms the country needs to pass to unlock bailout aid.
Without an agreement it would run out of money later this month.
A conference call of euro zone deputy finance ministers is scheduled for Wednesday to take stock of developments, although a deal is not expected until next week.
Greek 10-year yields edged up 7 bps to 11.74 percent, while yields in other low-rated bonds like Portugal, Italy and Spain nudged 1-2 bps lower.
Comments
Comments are closed for this article.