German bond sale sees demand fall short

Germany has sold €4.06bn (£3.39bn) of 10-year government bonds in its first auction of the year but demand fell short of the full €5bn on offer.

Demand was notably better than at the launch of the January 2022 bond in November when fewer bids were worth less than the €6bn on offer, resulting in almost 40 per cent of the paper being retained.

In today’s auction, a bond repayment of a previously-issued €25bn bond as well as more than €12.5bn of coupon payments to investors helped to improve demand to more than 80 per cent of the offered debt.

"(The bid/cover ratio) was above one, which the market will see as a decent start for the year because the previous one in November was a shocking one," Lloyds Bank rate strategist Achilleas Georgolopoulos said.

"Good redemptions helped it despite a slight risk-on mood today."

The average yield dropped to 1.93 per cent from 1.98 per cent but the dwindling returns on offer due to the sharp rally in safe-haven assets as the Eurozone debt crisis has intensified have led to lower than average demand at recent German auctions.

Bids on Wednesday were €5.142bn for the €5bn of paper on offer to give a bid/cover ratio of 1.3.

In November, the bid/cover ratio was 1.1, although taking into account the large amount of paper retained then, bids were not enough to cover the amount of paper on offer.

However, today’s auction is still below the average of 1.54 seen at 10-year sales in 2011 and a 19 per cent retention rate is also above the 2011 average.

This week's supply is focused on so-called core Eurozone issuers.

France sells up to €8bn of bonds on Thursday.