Germany sells 4.2bn euros of 10-year debt

LONDON: Germany sold 4.2 billion euros of 10-year government bonds on Wednesday with yields below 2 percent for the first time ever at a Bund auction.

The auction drew bids worth 1.5 times the amount on offer compared with 1.4 at a previous auction on Aug. 24 and an average yield of 1.8 percent versus 2.15 percent.

"It's still a decent auction for the Bund. Even ultra low yield levels are no real obstacle, we're still seeing demand for German paper."

"It's pretty much in line with expectation. The bid to cover is in line with averages we've seen for 10-year auctions (1.6 average for 10-year auctions this year).

"Overall it's a pretty decent auction. We always have to keep in mind the levels 10-year Bunds are trading at. it just shows ... the demand for safety is ongoing."

MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON

"Not bad at all. With the reduced funding that they have this year the auction sizes are not exactly challenging ... but a 1.5 cover with 1.8 percent a negative real yield is not bad."

"The expectation is that as events unfold with nothing being resolved in the eurozone and with hopes for more Fed quantitative easing ... bond markets (will benefit) in the short term."

"Quite clearly and understandably there's not a lot of confidence that something will be done which skews things towards risky assets any time soon."

PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE CIB, LONDON

"The auction is probably a bit of a relief, in that the yield of 1.8 percent is clearly well through the psychological 2 percent level and lower than where the paper has been trading for some of this morning. In terms of the tail and bid-cover, demand was not strong, but the take-away is that Bunds are finding enough demand at these levels. Technically we have gone some way to confirm that the market is now well established below 2 percent."

MARKET REACTION:

Bund future down 5 ticks at 137.39 vs 137.33 before auction.

German 10-year Bund yield up 1.8 bps at 1.81 percent vs 1.82 percent before auction.

German 2/10-yr yield spread 137 bps vs 136 bps before auction.

Table: See for full auction details.

BACKGROUND:

Commerzbank said this would be the first time the German Finance Agency has raised 10-year funds with expected negative real yields and nominal yields below 2 percent.

Copyright Reuters, 2011