LONDON (Reuters) - Germany launched its first syndicated bond sale in half a decade on Wednesday, as the government increases spending to support the country’s economy through the coronavirus crisis.
Germany raised 7.5 billion euros ($8.1 billion) via the 15-year syndicated bond deal, where the borrower appoints banks to sell debt directly to investors.
Bleak economic data released on Wednesday highlighted the need for the extra funding, while Germany’s outstanding bonds had their worst trading session in a month.
It was the first time the country sold a conventional bond via a syndication, according to a German finance agency spokeswoman, demonstrating the lengths issuers are having to take to fund stimulus programmes to fight the economic hit from the coronavirus pandemic.
Normally, Germany only sells debt through closed auctions. But it announced new syndicated issues earlier this year as part of increased funding needs, after the government said it would increase spending to try and prop up the economy through a potentially deep recession.
Previous syndications were for inflation-linked or U.S. dollar bonds, the spokeswoman said.
The deal attracted orders of more than 35.5 billion euros, the largest ever for a German syndication, the spokeswoman said.
Analysts said the country was able to price the bond paying little to no premium, in contrast to other euro zone states like Italy and Spain who have offered hefty concessions to get investors on board for their increased funding needs.
“Especially when you look at the concessions that were seen in other government bond syndications this year, the market was expecting a bit of premium for the syndication, which did not materialise,” said a lead manager for the sale.
He said this was a combination of Germany’s credit quality - as the euro zone’s highest rated sovereign - the rarity of this name in syndicated format and the fact that Germany had never issued in this tenor.
The German syndication came on a day when economic data showed orders for German industrial goods hit their lowest since records began in 1991, as the coronavirus crisis slashed domestic and foreign demand.
The euro zone economy is also expected to contract by a record 7.7% this year because of the coronavirus pandemic, inflation will almost disappear and public debt and budget deficits will balloon, the European Commission forecast.
As the sale was completed 10-year Bund yields had their worst day in a month, rising 7 bps to -0.51%..
They had edged higher at the start of the sale and extended their rise in later trading alongside most other euro zone bond yields after the Fed announced increases to its auction sizes and a long-planned 20-year bond that were bigger than the market expected.
Investors are also preparing to digest heavy supply from euro zone issuers with France and Spain due to hold auctions on Thursday.
Elsewhere, Italy’s Prime Minister Giuseppe Conte said the independence of the European Central Bank was key to the foundations of the European Union and no constitutional court should decide what it can do, following Tuesday’s German constitutional court ruling.
Italian 10-year bond yields, which had spiked on the ruling, rose 10 bps to 1.97%, their highest in two weeks, with the closely watched risk premium over German bonds at 246 bps.
Reporting by Yoruk Bahceli and Abhinav Ramnarayan, Editing by William Maclean/Mark Potter/Jane Merriman