Sovereign Bond Auction Fizzles in Germany

[RandomGuy]

aw crap. Hopefully the coordinated move by the central banks (http://news.yahoo.com/stock-futures-signal-losses-focus-banks-094410845.html)will have the desired effects.

If not, the inability of the strongest Eurozone government/economy to borrow is... worrysome. :spless:

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Germany has been considered a safe haven of financial stability amid the ongoing euro crisis -- but that may be changing. Growing mistrust from investors seems apparent after what has been described as a "disastrous" government bond auction on Wednesday. Just two-thirds of the German bonds sold, leaving analysts concerned but not panicked.

Investors seem to have lost their taste for Germany's once much sought-after government bonds. At an auction on Wednesday of the country's 10-year bonds, one-third went unsold according to the German Finance Agency, which manages the nation's debts. The federal government had initially intended to sell bond issues worth some €6 billion (around $8 billion), but managed to garner just €3.89 billion.


The leftover issuing volume of some €2.35 billion will now be offered on the so-called secondary market, where bonds already in the process of maturing are sold. Disquiet on the markets likely led to the drop in demand, the German Finance Agency said Wednesday. "The result of today's auction reflects the exceedingly nervous market environment," a spokesman said, adding that Germany still does not face a financial shortfall.

Analysts, on the other hand, weren't quite as relaxed about the situation. "This is a complete disaster," said Marc Ostwald, an analyst at Monument Strategies. Another industry expert, Ralf Umlauf from Helaba, a government bank in the states of Hesse and Thuringia, called the auction a "vote of no confidence against the entire euro zone." The event should be seen as a warning signal that shouldn't be minimized, the analyst said. "A change in sentiment has taken place," Umlauf told SPIEGEL ONLINE. In particular, foreign investors have become distrustful, he added. "They associate the investment in sovereign bonds with the risk of the euro zone," he said.

....
(rest of article here)
http://www.spiegel.de/international/germany/0,1518,799550,00.html

[Winehole23]

"The result of today's auction reflects the exceedingly nervous market environment," a spokesman said, adding that Germany still does not face a financial shortfall. today = 9/23?

[coyotes_geek]

Yeah, if Germany quits getting the benefit of the doubt, then look out!

[Winehole23]

yep

[boutons_deux]

last week's news

[Winehole23]

not everyone reads the news, or everything in it, Mr. Boss Man.

[Winehole23]

we can't all be titans of industry, winning our bread at the bleeding edge of the news, like yourself

[RandomGuy]

today = 9/23?

11/23

Who knows what next months auction will bring. (fairly sure they offer them once per month, could be wrong tho')

[Winehole23]

of course. i just wish it were still october.

[CosmicCowboy]

It will be interesting to see what happens in the next 10 year US auction...those investment dollars move around and may settle in the US driving bond prices up and interest down even more...although we are so close to zero already it's hard to visualize a huge move...

[RandomGuy]

http://www.bundesbank.de/download/kredit/kredit_emissionskalender_viertel_en.pdf

10 year bonds are offered about once per month, with other miscellaneous issues taking place during the course of each month.

There is no 10 year offering in December, or anything with longer maturities.

Remember these bonds are deliniated in Euros.

If you think the Euro is going defunct, you don't want to buy long-term notes in that currency.

Not sure what the next quarterly issue schedule will be. Interesting to keep up on it, so I added a book mark.

[Agloco]

Remember these bonds are deliniated in Euros.

If you think the Euro is going defunct, you don't want to buy long-term notes in that currency.

I read a while back that people were dumping French bonds due to the fact that the Euro overvalues the Franc. For a similar sense, people would more likely gravitate to German bonds since the Euro undervalues them.

Perhaps I have my stuff mixed up, but what does that mean exactly? Were they talking about bonds denominated in those respective currencies perhaps? Oh hell, I've gotta dig that one up I suppose.

[Agloco]

Found it:

http://www.cnn.com/2011/11/14/opinion/frum-euro-american-problem/index.html



If the euro cracks up, each country in Europe will be forced to (re)create a new currency of its own.

In such a world, German bonds would probably rise in value, while French bonds would probably fall quite sharply. As the markets become more anxious that the euro may fail, they exert pressures that help rip the euro apart.

Let me present some very simplified math, using made-up numbers, just to help explain the idea.

Imagine you were to buy a German bond worth 1,000 euros. That bond now pays interest of 20 euros a year, equivalent (let us say) to $30 U.S.

The crisis hits. The euro cracks up. Germany creates a new deutschemark equal to 1 euro. Your 1,000 euro bond is now a 1,000 new DM bond, paying 20 new DM a year. But because the euro implicitly undervalued German currency, it is highly likely that the new DM will rapidly appreciate against the dollar. In that case, your interest payment of 20 new DM would soon buy more dollars than your old interest payment of 20 euros.

Result: You are very happy to own German debt, despite the fact that Germany's total debt equals 83% of GDP.

Now imagine you were to buy a French bond worth 1,000 euros. That bond currently pays interest of 30 euros a year, equivalent to (say) $45.

But if the euro were to crack up, and France were to adopt a new French franc, that franc would probably decline against the dollar, because the current euro arrangement implicitly overvalues French currency. Instead of buying $45, your interest payment of 30 new francs might be worth only $30, perhaps even less.

Result: You are increasingly nervous about holding French debt, despite the fact that France's total debt equals only 82% of GDP.

The Euro arrangement implicitly overvalued some currency, and undervalued others apparently........

[Drachen]

Found it:

http://www.cnn.com/2011/11/14/opinion/frum-euro-american-problem/index.html




The Euro arrangement implicitly overvalued some currency, and undervalued others apparently........

This isn't surprising since Germany had a substantially stronger economy than the others. This is really the same as any currency arrangement. If each US state had its own currency, do you really thing that the Nebraska Dollar would = the New York Dollar?

[Agloco]

This isn't surprising since Germany had a substantially stronger economy than the others. This is really the same as any currency arrangement. If each US state had its own currency, do you really thing that the Nebraska Dollar would = the New York Dollar?

Thanks for supplying the light. :tu

I'm not the sharpest knife in the drawer when it comes to deciphering these things.

[TeyshaBlue]

Thanks for supplying the light. :tu

I'm not the sharpest knife in the drawer when it comes to deciphering these things.

Im with you Ag....its almost counterintuitive to not jump on German bonds to me.