Friday, February 13, 2009

Germany Fails To Place Treasuries Again

As the U.S. is preparing to issue trillions in Treasuries, with the latest twist being to add to the U.S. debt to help irresponsible borrowers subsidize their mortgage payments, it may want to take a look at Germany, which today failed for the second time (first time being a month ago) to issue 10-Year Bunds (the local Treasury equivalent). The auction fell 20% short of the $7.75 billion Germany tried to raise due to lack of demand. Investors are focusing on higher yield paper from other European sovereigns, as the Bund tried to come to market at 3.28% at which level apparently there is simply not enough demand.
A German sovereign bond auction failed yesterday amid growing danger signs for governments as they attempt to raise record amounts of debt to pay for fiscal stimulus packages and bank bail-outs, writes David Oakley.

It was the second successive failure this year of a 10-year Bund auction - usually one of the most sought-after - as demand fell 20 per cent short of the €6bn (£5.4bn)the German government wanted.

…The outcome signals trouble for governments as a record $3,000bn of debt is ex-pected to be raised this year in sovereign bonds - three times that of 2008.

German bond auction failures were rare until the credit crisis. Before the seven that failed last year, the last German bond auction not to reach its target was in July 2000, after the dotcom crash.

Carl Norrey, head of European rates trading at JPMorgan said the restricted demand for this latest issue - sold at a yield of 3.28 per cent - highlighted the price sensitive nature of government bond markets as investors have ever more debt to choose from. "Price is all important in a market with an enormous supply."

With spreads between German yields and those of other eurozone countries close to record wides, investors bought other eurozone paper this week because of the extra premiums they could obtain for this debt.

This event is hopefully not indicative of a decreasing appetite for sovereign securities, as all the stimulus, TARP and what not debates in the U.S. will be pointless if there is nobody out there with a desire to subsidize the humongous U.S. deficit being created. Sphere: Related Content
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Anonymous said...

This will NEVER happen to the US treasury.

Someone (from the Cayman Islands perhaps) will take the issue.

We're the FED, we print money and fight inflation