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Markets

German bond yields dip after issuance outlook

  • Germany outlines 2021 issuance plans.
  • Little surprise; Bund yields fall.
  • US/German 10-year yield spread off two-week lows.
Published December 18, 2020

AMSTERDAM: German bond yields edged down on Thursday, as Europe's benchmark debt issuer outlined plans for another year of hefty issuance in 2021.

After a record level of bond issuance this year, Germany will issue up to 471 billion euros through auctions next year, its finance agency said, to help its economy cope with the COVID-19 pandemic.

The surge in borrowing was largely expected, as Germany's finance minister said in late November that it was planning to raise 180 billion euros of new debt - almost double what was initially envisaged for 2021.

After opening the session slightly higher, German 10-year yields were down 1 basis point to -0.57%.

"The way that Bunds are rallying ... suggests that it was roughly in line with what was expected," said Peter McCallum, rates strategist at Mizuho in London.

"It's not too much of a secret that there's going to be more German issuance next year."

Euro zone bond yields led by Germany had jumped on Wednesday after better-than-expected business sector data readings for December, which pushed the country's 10-year yield up some 4 basis points, the biggest daily jump in over two weeks.

McCallum said Thursday's drop in yields was "perhaps to be expected after such a sell-off yesterday in core euro zone government bonds".

Trades after the data on Wednesday were likely to have been exacerbated by investors taking the opportunity to sell before the European Central Bank halts its bond buying during the holidays from next week.

Germany's finance agency also said it would sell via syndication two bonds - a new 30-year green bond and a new 30-year conventional bond in May and September.

In syndications, which governments have used much more than usual this year in raising funds for COVID-19 spending, a borrower hires investment banks to sell debt directly to end investors.

Positive risk sentiment on the back of progress on US stimulus, where congressional negotiators were closing in on a $900 billion COVID-19 aid bill, and hopes for a Brexit trade deal likely capped the drop in yields on Thursday.

There was little impact on euro zone bonds from the US Federal Reserve meeting, where the bank said it would maintain its current bond-buying policy until significant progress in the US economic recovery is made. That led to only a modest steepening of the Treasury yield curve.

The gap between US and German 10-year yields was at 150 basis points, off its lowest in nearly two weeks touched a sesson earlier.

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