Germany today slashed its planned fourth quarter debt issuance programme by a third, reaping the benefits of a robust economic recovery that has eased budget pressures and cut the country's borrowing costs.
An issuance cut was expected but the size of the reduction - almost €30 billion - took markets by surprise and helped send German government bond futures to a session high.
Germany's Finance Agency, the federal government's debt management office, said it aimed to issue 60 billion euros of debt instruments in the fourth quarter - down from €89 billion planned in its original 2010 programme, published last December.
"This is a result of favourable developments in the federal budget together with the current situation in the financial markets," it said in a statement.
The euro zone debt crisis has proved a clear help to Germany on debt markets, where risk aversion among investors has meant lower yields - and lower issuance costs - on German paper while yields have risen on peripheral euro zone instruments.
Germany had scaled back third-quarter issuance and flagged a similar move in the fourth quarter but the extent of the reduction was bigger than market players expected and boosted already buoyant German government bond prices.
The December Bund future hit a session high and peripheral bonds spreads widened after the issuance news and the release of a euro zone flash composite Purchasing Managers' Index (PMI) for September, which was below forecast.
"We are surprised by the size of the (issuance) cut and the market is too apparently, although it must be said that the Bund reaction is not just due to this," said Carsten Luedemann, capital markets strategist at DekaBank in Frankfurt.
"We are also seeing renewed stress in the euro zone periphery and unfavourable economic data," he added. "The PMIs were rather disappointing - all this together is behind this Bund reaction."
Reuters