Germany Sells Largest Amount of 10-Year Bonds Since 2014

(Bloomberg) -- Germany is ramping up its debt issuance, raising the most out of a sale of its benchmark bond in about six years.

It sold 4.14 billion euros ($4.6 billion) of debt that mature in 10 years, even though demand for the securities declined, with the offering seeing an oversubscription of just under twice the amount offered. That’s the least since April.

Fund managers are uncertain whether bunds will rally or slide given the risks of a second wave of the virus and the prospects for an economic recovery. Yet unprecedented levels of asset buying from the European Central Bank are maintaining a perceived shortage of the securities in the market.

“German net supply for the year should remain negative, in spite of the substantial fiscal package,” said Henry Occleston, a strategist at Mizuho International Plc.

Bund yields have been holding their ground at around -0.40%, just above the ECB’s deposit rate, after sliding to record lows during the coronavirus-driven market turmoil in March. That puts them at around their average level in the past year.

Despite the negative yields, traders can still make money if the bonds rally during bouts of risk-off sentiment. Buyers holding the debt to maturity are effectively paying the government to borrow.

Billions Chasing Bond Deals Enable Germany to Cut Cost of Debt

Chancellor Angela Merkel’s cabinet signed off on plans to raise another 62.5 billion euros ($70 billion) in debt on Wednesday to finance the country’s largest stimulus program in recent history. The government has been under pressure to seek a way out of the worst recession since World War II after exports tumbled and unemployment surged from the fallout of lockdowns to contain the coronavirus pandemic.

The auction of new bonds, with a 0% coupon, expire in August 2030. About 800 million euros were retained. The prior sale in May received bids that were more than double.

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