Natural Resources

[gfp927z]

>>> World's First 30-Year Bond With Zero Coupon Flops in Germany


Bloomberg

By John Ainger

August 21, 2019


https://www.bloomberg.com/news/articles/2019-08-21/germany-sees-anemic-demand-for-30-year-bond-sale-at-zero-coupon?srnd=premium


Nation sells 824 million euros versus 2 billion euro target
‘It is technically a failed auction,” says Danske’s Sorensen

Germany Sees Anemic Demand for First 30-Year Bond at Zero Coupon

The world’s first 30-year bond offering a zero coupon struggled to find buyers, signaling that negative yields across Europe may finally be taking their toll on investor demand.

Germany failed to meet its 2-billion-euro target ($2.2 billion) for the auction of notes maturing in 2050, selling only 824 million euros. It’s another sign that the global bond rally may be coming to a halt now that more than $16 trillion of securities around the world have negative yields.

German 30-year bond yields have plunged into negative territory

“This shows that there is less demand for 30-year bonds at negative yields,” said Marco Meijer, a senior fixed-income strategist at BNP Paribas SA. Still, Meijer doesn’t “see yields rising a lot in Europe.”

The whole of Germany’s yield curve is now below zero -- the first major market exhibiting such a trait -- meaning the government is effectively being paid to borrow out to 30 years. That’s a reflection of dwindling expectations for inflation and growth over the coming years, while the European Central Bank is widely forecast to introduce a new wave of monetary stimulus next month.

The sale comes as Germany is priming the pumps for extra spending should an economic crisis hit. While the nation is confined to strict laws on running a fiscal deficit, Finance Minister Olaf Scholz suggested Germany could muster 50 billion euros ($55 billion) should a recession hit. The economy contracted in the second quarter.

German 30-year yields rose three basis points to -0.12% as of 1:20 p.m. in London. Those on 10-year securities climbed two basis points to -0.67%.

The auction was at a record-low average yield of -0.11%, while the Bundesbank retained nearly two-thirds of the debt on offer. The real subscription rate -- a gauge of demand that accounts for retentions by the Bundesbank -- fell to 0.43 times against 0.86 times at the previous sale of similar maturity bonds on July 17.

Commerzbank AG had expected demand to come from life insurers and macro investors before the sale, despite the yield curve flattening in recent weeks. Long-dated German bonds are still attractive for U.S. investors, when hedged for currency swings, offering around a 2.6% yield, relative to around 2% on a 30-year Treasury.

“It is technically a failed auction,” said Jens Peter Sorensen, chief analyst at Danske Bank AS. “I am not all worried about this -- as investors can always just buy in the future and do not need to participate in auctions.”

<<<