Now investors shun bunds as IMF warns of safe haven danger

Tim Wallace
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GERMANY failed to sell its full allotment of bonds in an auction yesterday, as Italy’s borrowing costs jumped on renewed panic in the financial markets.

The poor sales came as the International Monetary Fund (IMF) warned investors are running out of safe havens for their cash, risking increased financial instability.

Germany only managed to raise €3.87bn of the €5bn it hoped for on 10-year bonds, at a yield of 1.77 per cent, as investors were reluctant to bid for such a low return.

The Italian government sold €11bn in one year debt, paying a yield of 2.84 per cent – double the 1.405 paid in mid-March and hitting its highest since December.

The poor sale came a day after stocks plunged five per cent on renewed Eurozone concern.

Meanwhile the UK sold £4.5bn in five-year debt at a slightly increased rate of 0.96 per cent.

An IMF report warned the flight to safety, combined with regulatory reforms and central bank buying has piled pressure on high quality assets, while weakness of firms and some sovereigns has reduced their supply.

This combination risks creating “more short-term spikes in volatility and shortages of high-grade collateral.”