Today’s reduction in demand for German bonds is an interesting and important development. It is logical: a perception of safety has pushed yields to unattractive levels and European banks are actively deleveraging. Regardless of the reason, higher costs could provide the incentive Germany needs to capitulate and lend support to an ECB backed solution. If they are going to do so, it needs to happen soon.
A German government debt auction drew some of the weakest demand since the introduction of the euro, signaling diminishing investor appetite for even the safest euro-zone assets amid Europe’s worsening debt crisis. The German government was able to sell only €3.644 billion ($4.92 billion) of the €6 billion in 10-year bunds on auction for an average yield of 1.98%. A buyers’ strike of German debt would represent a worrying escalation of the two-year-old debt crisis. Investors have flooded into German government bonds, or bunds, on the secondary market in recent weeks, shifting out of riskier Spanish and Italian debt. That has pushed German yields to below 2% in recent days.
Read the rest in the Wall Street Journal.