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Germany Plans Record Bond Sales in 2021 to Help Stem Crisis

Germany Plans Record Bond Sales in 2021 to Help Stem Crisis

Germany’s federal government plans to sell a record of almost 419 billion euros ($489 billion) in bonds and bills in 2021, as it maintains a spending splurge designed to put the economy back on track.

Europe’s benchmark issuer plans to sell 190 billion euros in bonds with a maturity over four years and 229 billion euros in debt with a shorter maturity, according to a draft of the 2021 budget published Friday on the Bundestag website.

”I don’t think market will have a problem to absorb it,” said Piet Christiansen, chief strategist at Danske Bank A/S. “After all, it is the most liquid and ‘safe’ name in the European government bond space we have.”

The planned issuance slightly exceeds the 418 billion euros that the federal government is selling this year to help cushion the fallout from the coronavirus pandemic, the draft shows. The previous record was 343 billion euros in 2010 at the height of the financial crisis.

Some 308 billion euros of gross issuance will be used to roll over existing debt, according to the plan, which is provisional and may change before the end of the year as it passes through parliament.

Chancellor Angela Merkel’s ruling coalition suspended its long-standing balanced-budget policy in March and launched a massive stimulus program. Planned bond issuance for this year was increased by at least 120 billion euros, adding to a pre-crisis program of 210 billion euros. The 2020 provisional data in the draft budget indicates that issuance has been raised in the meantime.

Germany Plans Record Bond Sales in 2021 to Help Stem Crisis

Germany’s Federal Finance Agency is due to publish its issuance plan for the fourth quarter on Monday. According to Bloomberg calculations based on the budget draft published Friday, debt sales are set to double to about 87.5 billion euros, compared with an initial plan for the quarter published in December.

Richard McGuire, head of rates strategy at Rabobank, said that a range of issue including geopolitical tensions, Brexit, the U.S. election and the impact of the coronavirus pandemic will mean there is sufficient demand to absorb debt Germany’s federal government brings to the market next year.

“The no-brainer argument that a virus-related jump in supply will weigh on core curves misses the point,” McGuire said. Rabobank estimates that the ECB will buy around 190 billion euros of German government debt in 2021, while around 27 billion euros of the nation’s funding needs will be met by grants from the European Union’s recovery fund.

The volume of debt sales next year includes net new borrowing of 96.2 billion euros. Finance Minister Olaf Scholz plans to rein in new debt markedly beginning in 2022, putting the federal government back in line with limits set out in the constitution.

New debt is projected to fall to 10.5 billion euros in 2022, before declining to 6.7 billion euros in 2023 and 5.2 billion euros in 2024. Additional measures, such as tax increases or spending cuts, may be required to reach those targets, setting the stage for a political debate ahead of the next election due by September.

©2020 Bloomberg L.P.