Germany to Boost Debt Sales 16% in 2016 to 203 Billion Euros

  • Government planning inflation-linked securities next year
  • Issuance volume higher due to follow-up financing needs

Germany plans to increase debt sales by 16 percent to almost 203 billion euros ($223 billion) even as the federal government plans to balance the budget.

Chancellor Angela Merkel’s government will sell 154 billion euros in bonds and 48.5 billion euros in bills, the Frankfurt-based Federal Finance Agency said in an e-mailed release Wednesday. This year’s issuance was nearly 175 billion euros. Also slated for 2016 are sales of inflation-linked securities with a nominal amount of between 8 billion and 12 billion euros.

“Despite planned net new borrowing of zero, issuance volume is higher than in the previous year due to higher follow-up financing needs, the periodical refinancing of six-month treasury discount paper and the funding requirements for reserves for the accommodation of refugees, ” the agency said, pegging the combined effect at around 15 billion euros.

Merkel promised voters before the 2013 election that won her a third term to avoid running deficits. The 2016 federal budget foresees an increase in spending by 3.3 percent to 316.9 billion euros without taking on new debt. To boost spending in response to a record influx of refugees, 6.1 billion euros in surplus revenue from 2015 will be shifted to next year.

Debt Planning

Germany is sticking with its current policy of selling debt of about 200 billion euros per year, Finance Agency head Tammo Diemer told reporters on a conference call. This year’s dip partly reflects strong tax revenue growth and a windfall in revenue from cell-phone frequency sales, he said. Reserves for refugees, while booked in a supplementary 2015 budget, will be paid out in 2016, “with the government borrowing the money as and when it needs it,” Diemer said.

“Compared to the current year, 2016 issuance will be a tad higher due to higher redemptions,” Elia Lattuga, a fixed-income strategist at UniCredit SpA in Milan said in a note to investors. “Borrowing requirements ex-redemptions will be zero.”

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