Germany to Test Haven Demand as 30-Year Bond Coupon Set at 0%

(Bloomberg) --

Germany will sell a 30-year bond at a 0% coupon for the first time on Wednesday, in a flurry of debt sales in the next two weeks offering negative rates.

The nation has previously only sold debt with a 0% coupon up to 10 years of maturity, including sales in the past month during a global debt rally. This week’s 30-year auction will test the continued demand for haven assets now that the whole of Germany’s yield curve is in negative territory.

The search for returns has driven 30-year yields to negative levels that cannot satisfy the return requirements of insurance companies and pension funds, according to Bank of America Corp. That risks a repeat of the bund “tantrum” seen in April 2015 when 10-year yields were approaching 0% for the first time and a lack of appetite for a debt sale triggered a sell-off, it said.

“There are some concerning parallels to today’s market environment,” said Ralf Preusser, global head of rates strategy at Bank of America, in a note. The risk is that at these yield levels, the German Treasury will eventually encounter a “buyers’ strike,” he said.

Germany will sell two billion euros ($2.2 billion) of new 30-year debt at 10:30 a.m. London time on Wednesday. The yield on Germany’s 30-year bonds fell five basis points Tuesday to minus 0.19% -- much lower than the 0.29% level on July 17, when the nation last sold similar-maturity debt.

One closely followed metric in Wednesday’s auction will be the oversubscription rate, which neared a record low in the July sale, having fallen for the last three auctions. Preusser said he would still look to fade any meaningful underperformance of the 30-year debt on the new supply.

Germany will next sell five billion euros of a new two-year bond on Aug. 27, followed by three billion euros of 10-year notes on Aug. 28 and four billion euros of five-year securities on Sept. 4.

To contact the reporter on this story: James Hirai in London at jhirai3@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, William Shaw

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