Demand for German bonds hits new lows

Posted on October 27, 2022Comments Off on Demand for German bonds hits new lows

Belgium, (Brussels Morning Newspaper) Demand for German bonds hit new lows in recent days as the country is raising money to finance its aid scheme worth 200 billion euro.

Germany is typically a reluctant spender and among EU’s most reliable debtors, but is having a difficult time finding buyers for its bonds, according to Reuters reporting on Thursday.

Germany’s difficulties are largely due to high uncertainty about state spending and interest rates as investors are not sure what to expect in the coming period.

Michael Leister, head of interest rate strategy at Commerzbank, pointed out that demand for German 5-year bonds was low at an auction on Tuesday, but stressed that some other recent auctions were “very, very, very bad.”

He noted that Germany sold approximately 1.78 billion worth of bonds earlier this month, in contrast with the target of 4 billion. The bid-to-offer ratio of 0.47 reflects weak demand for German bonds and was the country’s second lowest since 1999.

Data shows that ratios for 2-, 7- and 15-year bonds hit new lows in the last year or so.

Surge of borrowing expected

Analysts warned that markets expects a surge of German and more broadly EU bonds as bloc members struggle to rein in soaring energy prices and rising inflation. They added that central banks have tightened their policies and plan to gradually pull out of bond markets.

The Bank of America expects the EU to issue bonds worth approximately 400 billion euro next year, a new record high, while the European Central Bank (ECB) is reversing its expansive monetary policy.

Largely due to its high dependence on Russian fossil fuel imports, Germany is expected to borrow unusually high amounts in the coming years, with the parliament suspending Germany’s constitutional debt brake last week.

Piet Haines Christiansen, Danske Bank chief strategist, pointed out “it’s a German story to a large degree because Germany is the most exposed to the energy transition.” He noted that demand was high earlier this month for France’s bonds worth 10 billion euro.Commenting on long-term bonds, Leister pointed out that investors do not want to expose themselves to risk as EU and US central banks are hiking rates.

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