Germany plays down market response

REACTION:GERMANY HAS dismissed concerns over its financial position after it was unable to sell more than a third of its 10-year bonds at an auction.

The federal finance agency, responsible for the auction, said it was not unusual for bond auctions to end as yesterday, in which 35 per cent of the total €6 billion worth of bonds failed to find a buyer.

“This is routine, it’s happened nine times in the current year, the last time last week on Wednesday,” said spokesman Jörg Müller. “It happened seven times last year, five times the year before. It depends on supply and demand. At the moment it’s not a case of lack of demand, but that banks are bringing forward their final positions for the year.”

A spokesman for the federal finance ministry said there was “absolutely no problem”, a position shared by the ECB.

However traders expressed concern at the low interest in German bonds. “I’ve never experienced that Germany was unable to place such a high percentage of its bonds at auction,” said Rudolph Hessler from HSBC Trinkaus.

Mr Ralf Umlauf, analyst with the Helaba bank said: “It’s worrying that even with the best creditworthiness in Europe cannot fully refinance itself.”

The concerns were visible on markets, where German bund yields rose in line with those of French, Italian, Spanish and Belgian sovereign debt.

“It may now be that Germany is seen at risk either from a general flight out of euro-assets or from extreme burden-carrying,” said John Davies, analyst at WestLB.

Frank Schaeffler, a euro-sceptic MP with Germany’s ruling Free Democrats (FDP), said that “like a worm, the debt crisis is burrowing ever deeper”.

Germany’s Handelsblatt business daily called the auction a “flop” and a “warning shot that investors will no longer buy everything Germany has to offer”.

But it said it was too early to say in which direction to interpret the signal.

“Is this a response to Germany’s hesitation to save the euro with greater involvement?” it asked. “Or are the fears rising that Germany cannot load up increasing risk, for instance euro bonds, on to its own balance sheet?”

Either way, yesterday’s auction represents a new twist in the euro zone crisis.

To date, German sovereign bonds, nicknamed bunds, were seen as a safe haven for investors concerned about the risks associated with investing in sovereign debt of other eurozone members.