Germany Sees Record Bond Demand Amid Flight From Dollar Assets

(Bloomberg) -- Germany’s longest-maturity bonds saw demand rise to an all-time high as investors seeking alternatives to dollar assets bought the nation’s highest-yield notes.

Bids for the nation’s 30-year notes outstripped supply by 2.9 times, the highest since at least 1997, according to data compiled by Bloomberg. Similar-maturity bonds rose in the secondary market.

“There has been a structural increase in demand for non-dollar fixed-income paper, as a result of the ongoing sell off of dollar assets,” said Peter Chatwell, head of multi-asset strategy at Mizuho International Plc.

A gauge of the dollar this week declined to the lowest level in more than two years amid tensions over U.S. fiscal policy, presidential elections in November and the nation’s response to the spread of the coronavirus across the country. The flight from dollar assets has benefited the euro -- which climbed to the highest since 2018 -- and other European assets.

Government bonds in euro area are also being buoyed by the European Central Bank’s bond buying program, as well as optimism over the fiscal and monetary unity displayed by authorities in the bloc in recent months.

Record demand for Germany’s bonds “shows the bid for duration is still strong,” said Peter McCallum, a rates strategist at Mizuho International PLC. “We see the recovery fund as the game changer, while strong ECB measures have also helped.”

This contrasts sharply with one year ago, when low yields and an ambitious sale-size target saw the world’s first 30-year bond paying no coupon, held in Germany, struggle to find buyers. That prompted the nation’s debt agency to admit the auction may have been too large.

Wednesday’s sale “should go some way toward easing concerns that the market is not able able to digest longer duration supply over the summer months,” said Antoine Bouvet, senior rates strategist at ING Groep NV.

The nation raised 1.249 billion euros ($1.5 billion) from the sale of the securities at an average yield of minus 0.05%.

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