Friday, February 13, 2009

investors bought other eurozone paper this week be-cause of the extra premiums they could obtain for this debt

From Paul Kedrosky:

"
German 10-Year Bond Auction Fails for Second Time

This is such an interesting story, which is why I'm surprised it hasn't gotten more play:

A German sovereign bond auction failed yesterday amid growing danger signs for governments as they attempt to raise record amounts of debt to pay for fiscal stimulus packages and bank bail-outs, writes David Oakley .

It was the second successive failure this year of a 10-year Bund auction - usually one of the most sought-after - as demand fell 20 per cent short of the €6bn (£5.4bn)the German government wanted.

…The outcome signals trouble for governments as a record $3,000bn of debt is ex-pected to be raised this year in sovereign bonds - three times that of 2008.

German bond auction failures were rare until the credit crisis. Before the seven that failed last year, the last German bond auction not to reach its target was in July 2000, after the dotcom crash.

Carl Norrey, head of Eur-op-ean rates trading at JPMorgan said the restricted demand for this latest issue - sold at a yield of 3.28 per cent - highlighted the price sensitive nature of government bond markets as investors have ever more debt to choose from. "Price is all important in a market with an enormous supply."

With spreads between German yields and those of other eurozone countries close to record wides, investors bought other eurozone paper this week be-cause of the extra premiums they could obtain for this debt.

More here."

Don the libertDem

It's very interesting, especially as the Bund is considered like US Treasuries a Flight To Safety buy. Then there was this:

"Greece, the lowest-rated eurozone country that suffered a downgrade last month, comfortably sold €7bn on Monday, although it had to pay much higher yields than existing debt to sell the notes"

And from your social crisis list:

" * GREECE:
-- Greek farmers set up roadblocks across the country in January, protesting against low prices.
Most were taken down after the government pledged 500 million euros ($652 million) in aid. Blockades continued on and off at the Bulgarian border. On Feb. 3 riot police clashed for a second day with Crete farmers.

-- High youth unemployment was a main driver for rioting in Greece in December, initially sparked by the police shooting of a youth in an Athens neighbourhood. The protests forced a government reshuffle"

According to my views, this should be a signal that there is a diminution in the fear and aversion to risk. This could also be a sign that Greece's bonds are actually backed by all the other Eurozone countries implicitly. I don't know, but it certainly seems that somebody is tired of getting paid nothing for buying bonds. Since it's a 10 yr bond, it could also be that buyers feel that inflation will be back by then, so they don't want to be getting nothing for ten years, although there is some risk now.

I'm posting this because I'd really like to hear some ideas.

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