Dismal German Bond Auction Worries Investors
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In an ominous sign of things to come, Germany yesterday failed to secure buyers for 35 percent of its 10-year bonds put up for sale, sending borrowing costs higher and heightening fears of over Europe’s debt crisis.
Germany’s auction yesterday was one of the country’s worst bond sales since the launch of the euro, with the Bundesbank forced to buy large amounts of the bonds to ensure the auction would not fail.
Fears that contagion had spread to Europe’s largest and strongest economy, Germany, was clearly evident yesterday.
In an ominous sign of things to come, Germany yesterday failed to secure buyers for 35 percent of its 10-year bonds put up for sale, sending borrowing costs higher and heightening fears of over Europe’s debt crisis.
Germany’s auction yesterday was one of the country’s worst bond sales since the launch of the euro, with the Bundesbank forced to buy large amounts of the bonds to ensure the auction would not fail.
Fears that contagion had spread to Europe’s largest and strongest economy, Germany, was clearly evident yesterday.
Reuters reports that the euro stayed near seven-week lows against the dollar, having suffered a steep fall after a “disastrous” German bond sale fuelled fears the region’s debt crisis was beginning to threaten even Europe’s biggest economy.
“If Germany has to pay higher costs for its borrowing, it’s obvious it cannot help the entire euro zone. If German bond yields keep rising, that could even be a trigger for break-up of the euro,” Makoto Noji, senior strategist at SMBC Nikko Securities told Reuters.
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At the same time, US markets dived on the German bond flop. US equity markets tanked yesterday as the dismal bond auction fuelled fears over weak growth in Europe, a key trading partner of the US.
“The European debt crisis escalated after a failed German government-bond auction indicated that investors are now demanding higher risk compensation even at the heart of the currency bloc’s debt market,” said Robert Brusca, chief economist at FAO Economics.
Germany, which is been largely immune from the debt woes of its European neighbours, suffered its own blow as investors turned their backs on it. The 10-year bonds, considered the gold standard of the eurozone debt, raised only $5.2 billion of the $8.1 billion expected, a result that reflects strong caution and anxiety from investors.
Separately, German newspaper, Deutsche Welle, reported yesterday that Chancellor Angela Merkel is standing strong against calls from Brussels to introduce eurozone-wide bonds, calling the idea “extremely worrying and inappropriate,” calling instead for greater fiscal cooperation across the eurozone.
Related: Germany says “no” to euro bonds
Euro bonds would likely benefit countries like Greece, whose borrowing costs on the open market have become prohibitively expensive, but they would expose fiscally sound countries like Germany to more risk, thereby increasing the country’s prized low interest rates.
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