Germany’s Weakest Note Auction Since 2011 Signals Fading Demand

  • Nation sold 5-year debt at record-low average yield of -0.51%
  • More than 60% of German securities ineligible for ECB’s QE

Germany sold five-year government securities at a record-low yield, even as investors bid for less than the target amount in a sign that appetite for the nation’s negative-yielding debt may be dwindling.

The Finance Agency allotted 3.386 billion euros ($3.73 billion) of debt due in October 2021 Wednesday at an average yield of minus 0.51 percent. Investors bid for 3.486 billion euros of the securities, compared with a sales target of 5 billion euros. The official bid-to-cover ratio, a gauge of demand derived from the amount of securities allocated to investors compared with the amount tendered, fell to 1.03, the lowest at a five-year debt sale since September 2011.

The offering came amid speculation the European Central Bank may relax some of the rules of its asset-purchase program to combat the growing scarcity of core sovereign bonds available for its purchase.

The ECB will announce its latest monetary policy Thursday, its first decision since the U.K.’s vote to leave the European Union. The central bank will leave its deposit rate at a record-low minus 0.4 percent, according to all 48 economists in a Bloomberg survey.

‘Weak Auction’

“It was a weak auction, with very low bids,” said Mathias van Der Jeugt, a strategist at KBC Bank NV in Brussels. “That shouldn’t surprise given the record-low yield, which is now even below the ECB’s deposit rate. So the new bond isn’t even eligible” for the central-bank’s purchase program.

Benchmark German 10-year bund yields were little changed at minus 0.02 percent as of 4:25 p.m. in London, after declining four basis points, or 0.04 percentage point, in the previous two days. The price of the zero percent security due August 2026 was 100.17 percent of face value.

Analysts from UBS Group AG and SEB AB estimate the ECB may run out of German sovereign-bond targets within six months. More than 60 percent of the securities now yield less than the deposit rate, meaning that they’re ineligible for central-bank purchases.

Euro-area government bond yields were driven to record lows across the region in recent weeks by investors seeking the safest assets after the U.K.’s decision on June 23 to leave the world’s biggest trading bloc. That sparked market turmoil and renewed concern about the outlook for global growth.

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