Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Demand For EU Bond Issue Smashes Record

By Investing.com (Darrell Delamaide/Investing.com)BondsOct 27, 2020 06:21AM ET
www.investing.com/analysis/eu-sets-record-with-demand-for-bond-issue-lending-momentum-to-eu-government-200542480
Demand For EU Bond Issue Smashes Record
By Investing.com (Darrell Delamaide/Investing.com)   |  Oct 27, 2020 06:21AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Orders for the first issue of EU bonds to fund its Support to Mitigate Unemployment Risks in an Emergency (SURE) program smashed bond market records as investors sought €233 billion in bonds while only €17 billion were on offer.

The 10-year tranche of €10 billion was priced to yield minus 0.24%, considered a winner by investors when compared with Germany’s 10-year bonds yielding below minus 0.60%.

The enthusiasm for the issue bodes well for the €100 billion in bonds the EU plans to issue in the SURE program, as well as for the €750 billion next year to fund the EU’s recovery program.

Brussels has already pledged more than €87 billion from the SURE proceeds to 17 countries to help alleviate the burden of unemployment payments during the COVID-19 pandemic.

Some analysts suggested that the massive demand shows investor appetite for an alternative to US Treasuries, which dominate the government bond market with $27 trillion in outstanding securities. The EU has a long way to go to get to a fraction of that. But demand is clearly there.

The success of the EU issue had an immediate knock-on effect for Italian bonds. The Italian Treasury got more than €90 billion in orders for the €8 billion in 30-year bonds it sought to sell last week, and was able to price the bonds at a 1.76% yield, the second-lowest yield ever for 30-years.

Italy’s 10-year bond fell below a 0.76% yield last week as the restoration of COVID-19 restrictions throughout Europe reaffirmed investors' belief that the European Central Bank will expand its asset purchase program.

The icing on the cake was a rating boost from S&P late Friday. The agency not only affirmed the BBB rating for Italian bonds but also upgraded the outlook from negative to stable.

The surprise decision enabled Italian 10-year bond yields to sink to near 0.67% in Monday trading before bouncing back to 0.73%. two-year yields reached close to minus 0.38%. Bond yields move inversely to prices, so lower yields mean higher prices.

Germany’s 10-year bonds, after slipping below minus 0.62% last week, have recovered to slightly above minus 0.58%. The yield on the newly issued 10-year EU bonds shed nearly 10 bps after issue to sink below minus 0.30%.

The spike in COVID-19 infections and renewed restrictions throughout Europe have heightened interest in the ECB policy meeting this week. Most analysts have been expecting the central bank to announce an increase in bond purchases at its December meeting, and investors now hope that policymakers will signal their intentions this week.

One signal may be a downward revision in economic forecasts as the COVID resurgence puts more optimistic projections in doubt. Opinions among the 25 council members have been divided on the need for further stimulus, but new concerns may allay some of the differences.

Analysts expect the ECB will boost its asset purchase program by as much as €500 billion at the December meeting, even though it still has €750 billion left in its current program of $1.35 trillion.

In addition to the COVID concerns, the outcome of the US election next week may create some turbulence in the European government bond markets. An indecisive or contested result could encourage moves into safe-haven bonds, such as those of Germany. A prolonged dispute or protests could create further uncertainty and volatility. Some analysts suggest that markets are underestimating the risks of the US election.

Demand For EU Bond Issue Smashes Record
 

Related Articles

ValueWalk
These Are The Top Ten Nontraditional Bond Funds By ValueWalk - Jan 16, 2022

Nontraditional bond funds aim to avoid losses and earn a return that is uncorrelated with the overall bond market. Such funds deploy several strategies to achieve their objectives,...

Demand For EU Bond Issue Smashes Record

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Miguelito Dyal
Miguelito Dyal Oct 27, 2020 1:59PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
that's nuts! a MYGA can do 3x those returns
Michael Mostkow
Michael Mostkow Oct 27, 2020 1:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Of course none of this new money will be seen by the UK, as we have left the EU. One of unexpected consequences of Brexit in a global pandemic...Well done Brexiteers!!!!
Endicott Enyia
Endicott Enyia Oct 27, 2020 1:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it is wonderful
pardesi log
pardesi log Oct 27, 2020 1:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
thnx
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email