Germany Tests Record Bond Demand With Nearly Double the Supply
Germany Tests Record Bond Demand With Nearly Double the Supply
(Bloomberg) --
Germany will almost double its bond offering next week, testing whether record demand for its longest-dated securities will ripple across to other maturities.
The Treasury will sell 9.5 billion euros ($11 billion) of bonds, up from around 5.5 billion euros this week. A sale of 30-year notes on Wednesday saw bids outstrip demand by almost three times, the most since at least 1997.
The success of Germany’s sale contrasts with the U.S. Treasury’s offering of similar-maturity paper the prior week, which was oversubscribed by the least amount in over a year. It reflects a flight from dollar assets to the benefit of the European securities.
The renewed hunt for euro-denominated assets, coupled with Germany’s top rating and the prospect of more stimulus, has driven the yield on its benchmark bonds below the European Central Bank’s deposit rate. That’s despite the nation’s plan to issue more debt than the ECB can purchase.
Germany’s auction of 15-year debt on Wednesday should be well received, but Tuesday’s sale of two-year notes is unlikely to see excessive demand, said Peter McCallum, rates strategist at Mizuho International Plc. That’s because, with a yield of minus 0.69%, the cost of financing the purchase of the bonds is higher than what holders would get in returns.
“If you hold two-year bunds and finance the position in the repo market, you are losing over one basis point in carry and roll per month,” said McCallum.
Germany will be joined by Italy, Portugal and Belgium in holding scheduled bond sales next week. Commerzbank AG strategist Rainer Guntermann expects Finland to sell a new 10-year bond through banks, bringing total issuance for week in the euro area to about 27 billion euros.
Next week:
- The U.K. will hold three regular gilt auctions next week, selling a combined 7 billion pounds ($9.2 billion) and buying back 4.4 billion pounds of debt across three operations.
- ECB’s Isabel Schnabel, who is responsible for the bond-buying program, participates in a roundtable discussion Wednesday on the consequences of low interest rates for stability and growth and their implications for monetary policy; ECB chief economist Philip Lane will speak on monetary policy at the Kansas City Fed’s Jackson Hole Symposium on Thursday
- BOE chief economist Andy Haldane speaks in Edinburgh Wednesday while Governor Andrew Bailey will give a talk at the Jackson Hole Symposium Friday
- Euro area data is thin on the ground with July M3 money supply numbers on Thursday followed by August confidence figures Friday
- Germany’s Ifo survey for August and final 2Q growth numbers are due Tuesday
- U.K. data schedule slows next week with only second tier CBI sales data scheduled
- There are no euro-area redemptions or coupons until Sept. 1, when Italy pays around 34 billion euros
- Moody’s Investors Service reviews EFSF, ESM and Fitch Ratings reviews Ireland on Friday
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