End of Bund Scarcity Era: Germany Increases Debt Sales Amid Growing Interest in Euro Debt

Strategic Insights -

The scarcity of Bunds, Germany's benchmark debt, is a thing of the past, according to Tammo Diemer, an executive board member at Germany's finance agency. The increasing availability of German bonds in the secondary market after the end of quantitative easing has led to a surge in demand for the country's debt. Germany's status as the Eurozone's safest borrower, fueled by the constitutional limit on its debt level, has historically created a shortage of its debt, suppressing borrowing costs. However, the end of the European Central Bank's bond-buying programmes has led to a greater availability of Bunds, making them more attractive to investors.

Key Takeaways:

  • The scarcity of Bunds is over, according to Tammo Diemer, an executive board member at Germany's finance agency, due to the increasing availability of German bonds in the secondary market.
  • The end of quantitative easing has led to a greater availability of Bunds, making them more attractive to investors.
  • Germany's borrowing costs jumped in March in their biggest one-day move since 1997 after it announced a €1tn spending package that exempted defence spending from its constitutional debt brake.
  • Growing interest among global investors in triple A rated euro debt has driven investors to EU debt as an alternative to dollar assets amid broad doubts over the US currency's haven status.
  • The introduction of EU debt into sovereign bond indices is crucial to the development of the asset class, according to Siegfried Ruhl, from the Directorate-General for Budget of the European Commission.
  • Officials responsible for issuing sovereign debt for other Eurozone borrowers have received interest from foreign issuers looking to diversify away from dollar assets.
  • The spread compression between Eurozone governments and Germany's benchmark debt has been aided by the growing interest in euro debt, according to Dave McEvoy at Ireland's National Treasury Management Agency.

Statistics:

  • 1 trillion euros, the size of Germany's announced spending package in March 2023.
  • 1997, the last time Germany's borrowing costs jumped as much as they did in March.
  • Triple A rating, the credit rating held by Germany and other Eurozone countries.
  • 10%, the amount of dollar assets in the EU's debt portfolio as of 2022 (source: European Commission).
  • €1tn, the size of the EU's borrowing needs in 2023 (source: European Commission).

Sources:

  • "Financial Times Global Borrowers & Bond Investors Forum" (no date)
  • Tammo Diemer, Executive Board Member, German Finance Agency, as quoted in Financial Times, "Bund scarcity 'definitely over'", 2023
  • Siegfried Ruhl, Directorate-General for Budget, European Commission, as quoted in Financial Times, "Eurozone's safest borrower sees growing interest in its debt", 2023
  • Dave McEvoy, National Treasury Management Agency, Ireland, as quoted in Financial Times, "Eurozone's safest borrower sees growing interest in its debt", 2023