Germany has sold 30-year debt at a negative yield for the first time, although demand at Wednesday’s auction was weak as some investors balked at the prospect of paying to tie up their cash for three decades.

The sale of a new bond maturing in 2050 priced with a yield of minus 0.11 per cent, roughly in line with yields in the secondary market. German 30-year bonds have sunk into negative territory in recent weeks as investors pile into safe assets in anticipation of a revival of the European Central Bank’s bond-buying quantitative easing programme. The bond is the first German 30-year debt to be sold without coupon payments, meaning investors who hold it to maturity get nothing back until 2050.

However, the auction attracted only €869m of bids for up to €2bn of debt on offer. The ratio of bids to the offer size was the weakest since at least 2011, according to Peter McCallum, a rates strategist at Mizuho.

“It looks pretty bad,” he said. “I think there was a bit of apprehension; you might have had people worrying that a weak auction could be a turning point.” The relatively large size for a 30-year sale was also likely to have put off some potential buyers, Mr McCallum added.

The sale had been seen as a key test of demand for long-dated debt which has rallied dramatically this year. Some analysts warned of parallels with early 2015, when bonds rallied ahead of the start of ECB QE, only to sell off sharply once it started. Then, an underwhelming auction result was one of the triggers of the sell-off.

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Even so, despite the poor auction there was little sign of weakness in the secondary market, where yields briefly rose before settling lower than before the sale. Germany’s 2048 bond was trading at a yield of minus 0.16 per cent, down slightly on the day.

The ECB has indicated it is readying a package of easing measures — expected to include an interest-rate cut and more QE — for its September meeting, in a bid to tackle stubbornly low inflation.



Via Financial Times