Germany launched a 10-year benchmark bond at auction on Wednesday with record low yields limiting demand, but the debt's safe-haven status attracted enough investors to absorb the new issue smoothly. Germany sold 4.86 billion euros ($7 billion) of the September 2021 bond at an average yield of 2.15 percent - the lowest at auction since at least 1999, according to data from IFR, a Thomson Reuters service.
Some investors were reluctant to buy the new debt at such expensive prices, but persistent safe-haven demand, fuelled by fresh worries over the eurozone debt crisis and a gloomy economic outlook, ensured the auction received sufficient bids. "The auction is pretty much as expected, ie slightly soft in terms of absolute quantity of bids, but nothing particularly poor and certainly not bad for a new issue at such a low yield. Indeed, the quality of bids looks good," said Credit Agricole strategist Peter Chatwell.
The recent bout of extreme market tension over a second bailout for Greece and spread of the debt crisis to Italy and Spain has sent investors flocking to bonds from Europe's dominant economy, driving yields lower. Despite the European Central Bank calming some peripheral worries by agreeing to buy up Spanish and Italian bonds, the flight to quality has been sustained by data showing the global economy could be grinding to a halt.
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