German debt is in demand

City A.M. Reporter
GERMANY’S cost of borrowing sank to a record low at a sale of €5bn (£4.1bn) in 10-year bonds yesterday, while Portugal eased concerns over its finances by selling more short-term debt than previously planned.

Mirroring results of Irish and Spanish sales on Tuesday, the auctions showed there is solid demand for Eurozone bonds as the global economic outlook deteriorates, with investors willing to buy debt of riskier issuers at much lower prices than earlier this year.

The yield on three-month Portuguese bills almost halved from the previous auction in June, when fringe Eurozone borrowers were still recovering from a sell-off sparked by worries they and others could follow Greece into crisis.

“There still seems to be decent and sufficient demand out there from investors who are willing to buy at these prices and overall the funding capabilities of the peripheral seems to be well intact,” said Michael Leister, strategist at WestLB in Dusseldorf.

The new 10-year German bond showed a record low average yield of 2.37 per cent compared with 2.56 per cent for the previous benchmark in a tender in July.

Portugal sold €175m more than planned of its 3-month Treasury bills, at average yields of 0.994 per cent, down from 1.861 in June. The 12-month yield inched up to 2.727 per cent compared to another tender two weeks previously.

“It’s really amazing that the yield on the three-month paper almost halved, it definitely outweighs the negative side with the 12-month rate rising, which is not something to worry about,” said David Schnautz, bond strategist at Commerzbank.