This Year’s Recovering Bid for European Bonds Passes Fresh Test

(Bloomberg) --

This year’s improved appetite for European bonds passed a fresh test on Thursday with both France and Spain seeing strong demand for sovereign debt.

The two nations joined what’s shaping up to be an intense January for issuance as a sustained grab for yield sets the tone for European sovereign bond markets in 2020. Governments have shown few signs they’re heeding a call by the region’s policy makers for higher spending to stimulate economic growth, meaning the outlook for supply remains limited -- and demand remains high.

France’s sale of 30-year debt was over-subscribed by the most since March. At the Spanish auction there was most interest in its five-year bond. Portugal and Ireland were the first off the blocks to sell debt via banks in 2020, both drawing strong bidding and eclipsing a sale of negative-yielding German debt on Wednesday.

Bonds had a record year in 2019 but then sold off toward the end of the year when rising appetite for riskier assets interrupted the rally.

Antoine Bouvet, senior rates strategist at ING Groep NV in London, said some of the sales pointed to the beginnings of a rush by issuers to sell long-dated debt. “In terms of duration, the next big one should be a long-dated Italian bond,” he added.

Italy is expected to hold its next syndicated debt sale in January or February. In the first two months of 2019, it sold bonds maturing over 15 and 30 years. This week, Portugal and Ireland attracted bids of 23 billion euros ($25.6 billion) and over 20 billion euros respectively, with the latter a record. That is significantly higher than the debt each nation sold, at around four billion euros each.

By contrast Germany attracted bids of just 4.2 billion euros for its auction of 3.5 billion euros of benchmark 10-year debt.

“Neither real or levered money nor dealers were interested,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG, adding the German sale could have been even weaker. “There are plenty of interesting alternatives to put money to work.”

©2020 Bloomberg L.P.