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GERMANY HAS SUCCESSFULLY raised €5 billion through the sale of new 10-year bonds – the first bond auctions of 2012 – but has again seen its benchmark debt meet with weak investor demand, sending the euro close to a 12-month low.
The €4bn of bonds, maturing in early 2022, cost the government just 1.93 per cent in annual interest (down from 1.98 per cent) – but with the demand for the bonds still only marginally above the amount of debt on offer.
Investors had submitted bids for €5.142 billion of bonds – enough to cover the €5bn target – but the bid-to-cover ration of 1.03 was unusually low, and far lesser than Germany had expected in previous auctions.
The amount was lower even than at the last German auction in November, where the ratio was 1.1 – though in that case, the amount of debt being rolled over by Germany meant that its Bundesbank had to step in and buy around tw0-fifths of the debt on offer.
The weak demand may have been caused by investors anticipating a low yield; while Germany is seen as a ‘safe haven’, the interest rate is now lower than the German rate of inflation, meaning any investment would be worth less in ten years than it is now.
The auction is the first in a crucial fortnight for the eurozone’s major economies – France is to issue €8 billion in new bonds tomorrow, while Spain and Italy will issue bonds next week.
The euro fell on the back of the poor auction, falling to $1.29 against the US dollar – nearing its lowest value in a year.
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So the greedy investors in government bonds dont want to buy if they cant get a good return. But they will oversubscribe to Italian and Spanish bonds. Can’t anyone see whats going on. These muppets are driving up bond rates in countries that are in trouble and buying them up for a bigger return. Knowing that Government debt (soverign bonds) is safe and bloody guaranteed. I thought this bad behaviour is what got us to where we are today. Bankers rule the world not governments. I give up. My blood is boiling.
I am bored by everything. I am a nihilistic amoeba at this point. I never want to hear about bond yields again for the rest of my natural life. Let’s just invade Belgium or something. Or set all icecream on fire with paraffin. Anything.
Dear Euro currency.
F**K OFF.
Dermot that’s the most sensible post I’ve seen in a long time.
James, you got it wrong, mate. Higher demand helps keep the coupon on bonds (interest essentially) lower. Without high demand the Italian and Spanish governments would have to increase the coupon to sell the entire issue. I think banks are not at fault here. It’s the biggest buyers of sovereign debt like for example your own pension fund. The ECB hope the EU banks would restart buying sovereign debt en masse and this is why they gave them 3-year low interest finance but banks essentially fear the sovereign debt having seen what happened in Greece (‘voluntary haircut’ rendering all default insurance useless) and are not buying govt bonds it seems at least not in the volume ECB expected them to do.
Hello Dom. Im no expert but didnt banks buy up government debt with their low interest rate loans. I thought that money was to be used to increase liquidity and not to shore up the banks balance sheets. What happens if othr countries bonds are given a 50% haircut like Greece then that money has been wasted. Like I say…im no expert here. I jst have a great dislike for banks and bankers.
Money loaned from ECB and then deposited back is not shoring up the bank balance sheets. It is improving liquidity although perhaps not the liquidity of sovereign bond market at least not to the extent it was hoped. You see, when banks fail to buy Italian bonds with ECB cheap money then they are damned because they didn’t. And if they did, then they are damned for making the 6% or so difference. Since Jesus expelled lenders from the temple few liked banks no matter what they did and what was understood.
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