Germany sold bonds with a zero coupon – meaning it pays no interest to the holder – for the second time this year, reflecting a fall in its borrowing costs to historic lows as the Eurozone debt crisis threatened to engulf Spain and Italy.
While the prospect of the ECB buying Spanish and Italian bonds to curb the two countries' borrowing costs has improved appetite for riskier assets, doubts over the size and timing of any intervention has ensured underlying demand for German debt.
The sale drew bids worth 1.5 times the amount on offer, less than an average 1.89 times at similar auctions so far this year and compared with 2 at a sale in July. Analysts said demand was "reasonable", especially from banks seeking to bolster their balance sheets.
"The fact that it came at a zero rate still shows that despite the improvement in risk appetite recently, investors are still concerned (about the Eurozone debt crisis)," RIA Capital Markets strategist Nick Stamenkovic said.
Germany paid no premium to sell the bonds, although in the last two auctions investors effectively paid Berlin to park their cash in the two-year paper.