Business World

Thursday 14 December 2017

German and Portuguese bond sales buy eurozone some time

The Euro sculpture at the European Central Bank in Frankfurt, Germany, photographed on the first day of the new year. Photo: AP
The Euro sculpture at the European Central Bank in Frankfurt, Germany, photographed on the first day of the new year. Photo: AP
Thomas Molloy

Thomas Molloy

THERE was good news for Germany and Portugal following bond auctions yesterday, which kicked off a huge sovereign refinancing cycle in the eurozone.

Germany was able to sell more than €4bn of 10-year government bonds for the first time in three months. Demand for the bond sale was notably better than at the bond's November launch, which was one of Germany's least successful debt sales since the introduction of the single currency.

Germany plans to issue €250bn of debt in 2012, down from €275bn in 2011, including €170bn of conventional government bonds.

"It looks solid -- there's nothing surprising. It (the bid/cover ratio) was above one, which the market will see as a decent start for the year," said Achilleas Georgolopoulos, a strategist at Lloyds Bank in London.

The sale was "much better than November's auction, but not particularly great either," added Peter Chatwell, rate strategist at Credit Agricole.


In a brisk start to the 2012 debt auction calendar, France will try to sell up to €8bn of bonds today. However, the key test of investor sentiment comes next week when Spain and Italy -- the two countries most exposed to an escalation of the crisis, kick off their funding campaigns.

Today's sale by France comes under the shadow of a possible cut to its triple-A credit rating in the days ahead. Italy's 2012 debut bond sale will be a particular focus with 10-year yields again approaching the 7pc level widely seen as unsustainable. Yesterday's sale drew bids worth a healthier 1.3 times the amount on offer.

Portugal also had some good news as borrowing costs fell at an auction of €1bn worth of three-month bills. The securities due in April 2012 were issued at an average yield of 4.346pc, the country's debt management agency said. That compares with an average yield of 4.873pc at a previous auction of three-month bills a month ago. The auction attracted bids for 2.4 times the amount offered, compared with a bid-to-cover ratio of 2 in December.

Bloomberg reported, however, that the ECB bought Portuguese government bonds. The news wire cited two people with knowledge of the transactions. A spokesman for the ECB in Frankfurt declined to comment yesterday on asset purchases.

In the Czech Republic, the government's funding costs climbed to the highest levels in more than six months in an auction of two-year bonds on growing concern the economy will slip into recession, making deficit reduction more challenging. The country sold 8bn koruna (€312m) in notes maturing in March 2014 but the average yield on accepted bids rose to 1.954pc from 1.599pc at the last sale of the security in late October.

Investors are worried the economy may contract as much as 2pc this year, cutting 2012 revenue by as much as 50bn koruna, Finance Minister Miroslav Kalousek admitted this week. The budget is based on a 2.5pc GDP growth assumption.

"If, instead of the planned 2.5pc growth, the economy slightly declines, the budget deficit may easily amount to 150bn koruna without further measures," analysts at Prague-based CSOB AS wrote in a research note yesterday.

Investors in the auction ordered twice the amount of the debt sold, according to the central bank data. (Additional reporting Bloomberg and Reuters)

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