Germany was hit by the aftershocks of this week's debt market turmoil Wednesday as it latest bond sale failed to entice enough investors to raise the Finance Agency's target.
Investors bid for just €1.1 of each €1 of bunds on offer in the auction of new 32-year debt securities, a so-called bid-to-cover ratio that was around half of the level seen at the previous sale. However, the mechanics of the auction mean the Bundesbank will retain around €595m of the €3bn originally targeted for sale after accepting bids of only €2.4bn.
Traders refer to this situation as an "uncovered" auction becuase the amount of accepted bids is less than the published total. Borrowing costs, however, for the July 2044 bund fell to 2.41 percent, while the coupon attached, at 2.5 percent, was the lowest on record for a long-bond sale by the Bundesbank.
German bund futures for June delivery hit session lows after the auction, falling 43 ticks to trade at 140.19. Benchmark German 10-year bund yields have been rising for much of the morning session, touching 1.73 percent by mid-morning, as investors move to buy cheaper government bonds from Spain and the Netherlands, whose yields had risen sharply this week as investors worried about the implications of Spain's return to recession and a potential new leader in Holland after the resignation of Prime Minister Mark Rutte.