by Tyler Durden
Following yesterday's very disappointing 5 Year $35 billion auction by the US Treasury, Germany followed up today with its own unsubscribed bond auction failure, after Germany sold just €4.825 billion in 5 year bonds at the 2011 low yield of 2.16%. The problem - the auction remained technically undersubscribed as the €6 billion offer only received €5.445 billion in bids. Even on a sugar coated basis, the BTC was just 1.1, a plunge from the 1.9s seen recently. But such is life without the backstop of Primary Dealers who buy up everything there is, until they themselves are no longer able to flip the shell game. From Dow Jones: "The Bundesbank said all bids at the lowest price were accepted and it satisfied all the non-competitive bids at the weighted average price. The amount retained for market-tending purposes was about EUR1.175 billion, bringing the total issue size to EUR6 billion, as previously announced." Bottom line, with the pristine economy of Germany unable to sell bonds, what does that mean for the US and the rest of the insolvent "developed" world?
Full details:
Issue five-year bobl
Coupon 2.75%
Maturity April 8, 2016
Amount on offer 6 bln
Bids received 5.445 bln
Bids accepted 4.825 bln
Bid-to-cover ratio 1.1 (1.9)
Average yield 2.16% (2.45%)
Average price 102.63 (101.35)
Minimum price 102.60 (101.34)
Settlement date July 1, 2011
Coupon 2.75%
Maturity April 8, 2016
Amount on offer 6 bln
Bids received 5.445 bln
Bids accepted 4.825 bln
Bid-to-cover ratio 1.1 (1.9)
Average yield 2.16% (2.45%)
Average price 102.63 (101.35)
Minimum price 102.60 (101.34)
Settlement date July 1, 2011
And some expert responses to the auction per Reuters:
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM
"It is not so great. In terms of bid-to-cover it was not successful. The five-year had outperformed the 2- and 10-year as the market started to reduce expectations of (European Central Bank interest rate hikes). Yesterday we had a great selloff in the five year because of comments from (ECB President Jean-Claude) Trichet."
"The fact that bid-to-cover was lower is mainly related to the change in sentiment on the periphery and expectations on the Greek vote and because the market starts to reprice interest rates after Trichet's comments."
"Nothing bad for Germany, but the market is starting to become bearish on the five-year."
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, CIB
"Obl auction technically uncovered with bids totalling 5.45 billion euros in a 6 billion euro issue. A large tail also. Of course this was difficult paper to sell in a bearish session, but this auction is worse than expected, as was last night's 5-year U.S. Treasury auction. With a longer term view, weak core 5-year auctions are a good indication that the rally in core paper has run its course."
CHIARA CREMONESI, RATES STRATEGIST, UNICREDIT, LONDON
"The auction is technically uncovered...(The bid/cover ratio) is in sharp contrast with the previous trend at the Obl auction, when cover ratio was on average 1.9 times. This might be due to the fact that the 5-year area on the German curve is trading very expensive, and also in absolute yields terms is not very attractive -- lowest yield since the January auction. Even after considering this fact I was still expecting a better result anyway, given that 24 billion euros of redemptions from Germany were also supporting the auction."
"It is not so great. In terms of bid-to-cover it was not successful. The five-year had outperformed the 2- and 10-year as the market started to reduce expectations of (European Central Bank interest rate hikes). Yesterday we had a great selloff in the five year because of comments from (ECB President Jean-Claude) Trichet."
"The fact that bid-to-cover was lower is mainly related to the change in sentiment on the periphery and expectations on the Greek vote and because the market starts to reprice interest rates after Trichet's comments."
"Nothing bad for Germany, but the market is starting to become bearish on the five-year."
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, CIB
"Obl auction technically uncovered with bids totalling 5.45 billion euros in a 6 billion euro issue. A large tail also. Of course this was difficult paper to sell in a bearish session, but this auction is worse than expected, as was last night's 5-year U.S. Treasury auction. With a longer term view, weak core 5-year auctions are a good indication that the rally in core paper has run its course."
CHIARA CREMONESI, RATES STRATEGIST, UNICREDIT, LONDON
"The auction is technically uncovered...(The bid/cover ratio) is in sharp contrast with the previous trend at the Obl auction, when cover ratio was on average 1.9 times. This might be due to the fact that the 5-year area on the German curve is trading very expensive, and also in absolute yields terms is not very attractive -- lowest yield since the January auction. Even after considering this fact I was still expecting a better result anyway, given that 24 billion euros of redemptions from Germany were also supporting the auction."
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