Germany boosted its target for debt sales next quarter by 3 percent to provide funding for the euro- area’s financial backstop, the Federal Finance Agency said.
Europe’s largest economy will issue 68 billion euros ($89.5 billion) of bonds and bills, up from a 66 billion-euro forecast in December, the Frankfurt-based agency said today in an e- mailed statement. Germany has agreed to pay 21.5 billion euros of the 80 billion euros required for the “paid-in” cash reserve of the 500 billion-euro European Stability Mechanism. The permanent fund will become operational in July.
“This moderate increase of the credit volume is an important contribution to the stability of the euro,” Carl Heinz Daube, managing director of the debt agency, said in note e-mailed to Bloomberg. “Due to the accelerated payment of the German contribution to the European Stability Mechanism the credit requirement in the second quarter will rise by a moderate 2 billion euros.”
Germany plans to auction 47 billion euros of bonds next quarter, up from a Dec. 21 prediction of 45 billion euros, the agency said. The government will also sell 21 billion euros of bills, it said. The country will increase the amount of February 2017 notes it will sell by 1 billion euros to 4 billion euros, and it will issue 5 billion euros of a new security due in April 2017, up from a previous forecast of 4 billion euros.
Germany is increasing bond issuance as Europe’s sovereign debt crisis damps the nation’s exports and tax receipts.
Funding needs may be “a bit higher than they expected because economic activity is not as strong,” said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. “The interest of the market in German auctions has been very high, so they don’t run the risk of increasing the size and have undersubscribed auctions.”
Europe’s fiscal turmoil, which has led to financial bailouts for Greece, Ireland and Portugal has crimped growth in the region, reducing government revenues and threatening attempts to curb debt levels. Europe’s largest economy contracted by 0.2 percent in the fourth quarter as a stalling global recovery hurt exports. German bond yields have fallen to records lows as investors favored its debt as a haven.
The yield on the German 10-year bund fell four basis points to 1.94 percent at 12:38 p.m. London time. The yield dropped to a record 1.64 percent on Sept. 23.
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