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Buyers Of German Bonds Finally Pulled Out Their Calculators
Wolf Richter www.testosteronepit.com
Since the beginning of the Eurozone debt debacle, Germany benefited spectacularly from its reputation as safe haven. While yields were spiking in other Eurozone countries, German bond yields were dropping; and even 10-year bond yields dipped below the rate of inflation. So perhaps when it offered €6 billion in 10-year bonds at an average yield of 1.98%, a record low for auctions, it expected them to fly off the shelf. But they didn’t.
“A disaster,” analysts and the media proclaimed worldwide. "Debt crisis now at German doorstep," MarketWatch called it. Investors only bought €3.6 billion in bonds of the €6 billion offered. The Bundesbank had to retain the remaining €2.4 billion to be sold in the secondary markets. Not unusual under the German system: the Bundesbank had propped up six of the eight most recent bond auctions. But the magnitude is nevertheless a shocker. The 39% that the Bundesbank got stranded with is the highest ratio on record since Germany started issuing bonds in euros.
"There is absolutely no problem," said a spokesman for finance minister Wolfgang Schäuble to calm the waters. Germany will have to issue €275 billion in bonds next year to fund ongoing deficits and pay off maturing debt. And calm waters would be nice.
So maybe it was a disaster. Or maybe, it was simply a sign that investors stepped back from Eurozone mass hysteria, checked their data, and pulled out their calculators. And suddenly, that below-inflation yield of 1.98% looked very unappetizing.
They might have remembered some other things. Model Economy Germany was suffering not long ago from stagnation that lasted many years. It was also one of the first EU members to violate the Maastricht Treaty’s criteria that limit deficits to 3% of GDP and gross national debt to 60% of GDP. Currently, Germany’s debt is over 80% of GDP, just a hair lower than France’s and only about average for the Eurozone.
"The level of German debt is troubling," said Luxembourg Prime Minister Jean-Claude Juncker a few days ago. His country’s debt is only 20% of GDP.
But Germany’s current deficit of 1.3% of GDP is low and is expected to decline further, perhaps even become a surplus. In theory. In reality, politicians, drunk with surplus euphoria, are already ratcheting up spending plans. Just wait till the recent collapse in the all-important export orders worms itself into GDP numbers and tax receipts. Big deficits will be back.
And there are other reasons why investors might have lost their previously ravenous, practically insatiable, and certainly irrational appetite for “safe-haven” bunds. Among them:
- Germany might get sucked into the whirlpool of Eurozone sovereign bonds by guaranteeing more and more of them via European bailout funds and Eurobonds. All would transfer risk to Germany's own finances.
- Or the opposite: Germany might not do enough, fast enough, to save the euro, and as a consequence, might get sucked down as well.
- Germany might allow the ECB to print unlimited amounts of money and solve the debt crisis once and for all through inflation and devaluation.
- Or worse for bondholders: Germany might break away from the eurozone and issue its own currency either within a mini-eurozone or alone. The ECB would then be free to solve the debt crisis of the Eurozone’s remaining members by monetizing their sovereign debt. The euro might well lose 30-50% of its value over the next decade, as the dollar has done. And investors who’d bought euro-denominated 10-year bunds at a yield of 1.98% would get screwed royally.
In this scenario, Italian 10-year bonds with a yield of over 7% would compensate investors adequately for the expected inflation. And risk of default would return to near zero if the ECB starts monetizing the debt of its members.
So, very prosaically, investors may just be sick and tired of handing over their money in exchange for paper that will guarantee them a loss after inflation. Most likely, they haven’t lost confidence in Germany, and they don’t expect the Eurozone to collapse, but simply would like to earn a tiny bit of money after inflation on a 10-year investment. That, in normal times, shouldn’t be cause for concern.
Meanwhile the Bank of Greece warned parliament that it must honor its commitments under the bailout agreements with the Troika, or else Greece could be kicked out of the Eurozone. And yet, The European Bailout Fund Paid For Greek Money Laundering And Fraud ... and then a bomb exploded.
Wolf Richter www.testosteronepit.com
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poor germany
.
europe is getting its emotional balls cut off
Everone knows that the central bank system is a ponzi, that national "leaders" do not believe their own financial pronouncements, that no one really knows how this will end except that it will be a catastrophe, so why is any nation required to pay anything into this bogus system? Why are a few inept officials allowed to morgage entire nations?
The central bank scammers running the whole show can't even add or subtract, they cannot account for the most routine payments, and don't see why they should, they loot at will and without fear of law, i.e., IMGlobal, so if and when they control all currency there is no reason to think that they will know how to manage it.
Is there one law in existance that makes bank fraud illegal when it is done by central bankers?
The Icelanders had the right idea, told the central bankers to eff off, and they are now in economic recovery, or at least better than the countries foolish enough to repay dept that was never theirs.
The whole thing is an illlusion of fear, if each country opted out of the hostage system and printed their own money we'd all be better off.
UK inflation (real - not BofE fantasy figures)is in excess of 10% and yet it is considered a "safe haven"!!!!
WTF!!! Those people buying UK gilts are going to get wiped out,UK will be the next to fall and it will be historic.
>500% debt to GDP,a welfare state economy,millions of unemployed,what's left of the manufacturing industry struggling despite a 30% devaluation in sterling,millions of illegal immigrants,500,000 economic migrants flooding into the country every year,>20% of working population dependant on state for their job are all dependant on the state for their weekly paycheck,declining North Sea oil revenues,coal fired power stations coming to the end of their useful life,but no money to build their replacements,NHS black hole swallowing ever more billions to treat less and less patients, I could go on,but if any investor in the Uk, either equities or gilts ever spent just a day being driven around any major city,they would run screaming to the nearest airport to get on the next flight out.
When are the US bond buyers going to get their calculators out?
the fed couldn't care less about calculators--they print what they spend anyway. The rest of us have been standing back watching the situation with that "oh shit" feeling-->the fed and moron multinationals are jeethner's only customers.
Bund and the rest of euro area yields have to converge at same yield theoretically and start going higher. That will solve the Eurobond question for Germans.
UK inflation is 5%. Do they not use calculaters there ?
Germany prints and i'll be wearing my athletic cup 24/7, we're totally forked.
won't help, but in preparation, it will make u feel that u have done something.
Try something else, outta' da box. (errr... cup)
- Ned
Germany is agreeing to print. The Netherlands as well.
Get ready.
Is this a prelude to Germany 4.0 as predicted by Max Keiser?
-John
http://www.johnu78.com
There's only one way for the euro to go now--and that's be gone period. if the US wasn't wilding around the Middle East this is the point where we'd set up some type of "interim money solution" while Europe could go back to something like it was before (but different of course.) Instead "we're in for a rough ride" as the USA has neither the inclination nor the will to help anyone right now.
Guilt by association, or as the Rednecks say, you are who you hang with.
There is more than a hint
That the EU will print.
Indeed.
Germany was against countries who pushed their banks to buy bonds to keep the rates in line.
Now the Bundesbank did the same.
Talk about hypocrits.
But now that they did it... the crack has found it's way to the brain and will make them do it again as soon as needed.
And as any crack addict, they soon also be tempted to smoke the print pipe.
Maybe the grand plan is ALL of the Eurozone defaults on their debt and starts a cash-only basis program. Seems to be working out for strategic home defaulters. Why care about a credit rating if you don't intend to borrow? Isn't it going to end up being the zero sum game anyway? Actually the idea is growing on me.
nfw: "All of the Eurzone" can't agree on the time for breakfast. Good try, tho' - Ned
Happy Thanksgiving!
and to you 'n yours.
and I'm giving you my personal exemption from the following kvetching!
- Ned
{and stay away from Starbucks, 'cuz this quarter won't even come close with that to buying you a cuppa'.}
you got it all right except one thing:
they will go through the hard way over and over and never learn.
http://expose2.wordpress.com