German 10-year bond issue hit by low demand

An issue of German benchmark 10-year bonds attracted low demand Wednesday as investors held back in a volatile environment pending key decisions from policymakers, central bank data showed. In an issue of 5.0 billion euros ($6.25 billion) worth of 10-year bonds or "Bunds", only 3.93 billion euros in bids were received, of which 3.61 billion euros were allotted, said the German Bundesbank, which organised the sale. The average yield paid on the bonds was 1.42 percent, unchanged from the rate paid at the last auction on August 8. The so-called cover ratio -- which measures the proportion of bids tendered to those allotted, giving an indication of demand -- stood at 1.1, compared with 1.8 in August. The Bundesbank said 1.39 billion euros worth of bonds were retained for market-tending purposes, as per usual practice. "It was an adequate result," said a spokesman for the Federal Finance Agency, which is in charge of Germany's debt issuance. "The data continue to point to a very volatile market environment, which is showing a high degree of caution pending key decisions. Demand for bonds in the 10-year segment is a lot lower than in previous auctions," the spokesman said. An analyst at Newedge Strategy described the outcome of the auction as "very disappointing." Market dealers "might have been cautious as the paper will be tapped again in three weeks, with some potential cheapening in the near term," the analyst suggested. Uncertainty surrounding the European Central Bank's regular monthly policy setting meeting on Thursday "might also explain some of the weak demand," she added. Expectations are running high for the meeting after ECB chief Mario Draghi suggested last month the central bank "may" reactivate a contested programme to buy up the sovereign debt of eurozone countries.