Germany is to sell an ultra-long bond at a 0 percent coupon for the first time today, in a flurry of debt sales in the next two weeks offering negative rates.
The nation has previously only sold debt with a 0 percent coupon up to 10 years of maturity, including sales in the past month during a global debt rally.
This week’s 30-year auction is to test the continued demand for haven assets now that the whole of Germany’s yield curve is in negative territory.
The search for returns has driven 30-year yields to negative levels that cannot satisfy the return requirements of insurance companies and pension funds, Bank of America Corp said.
That risks a repeat of the bund “tantrum” seen in April 2015, when 10-year yields were approaching 0 percent for the first time and a lack of appetite for a debt sale triggered a selloff, it said.
“There are some concerning parallels to today’s market environment,” Bank of America global head of rates strategy Ralf Preusser said in a note.
The risk is that at these yield levels, the German Treasury would eventually encounter a “buyers’ strike,” he said.
Germany is to sell 2 billion euros (US$2.21 billion) of new 30-year debt from 10:30am London time today.
The yield on Germany’s 30-year bonds on Monday climbed to minus-0.14 percent, in a selloff sparked by signs that the government is getting ready to spend more in the event of an economic crisis.
Still, the yield is much lower than the 0.29 percent level on July 17, when it last sold similar maturity debt.
One closely followed metric in today’s auction would be the oversubscription rate, which neared a record low in last month’s sale, having fallen for the past three auctions.
Preusser said he would still look to fade any meaningful underperformance of the 30-year debt on the new supply.
Germany would next sell 5 billion euros of a new two-year bond on Tuesday next week, followed by 3 billion euros of 10-year notes on Wednesday and 4 billion euros of five-year securities on Sept. 4.
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