By Yoruk Bahceli and Harry Robertson
AMSTERDAM (Reuters) – Euro zone governments sold a record amount of bonds directly to investors in January, the highest demand ever recorded, as hopes of interest rate cuts grow for a shrinking economy.
This stands in stark contrast to considerations about the government’s main financial desires in 2023, specifically in the US, which triggered a bond rally and pushed loan prices to their point in more than a decade in October.
Eurozone governments raised a record 73 billion euros ($79. 1 billion) from sales of syndicated bonds in January, according to LSEG IFR data as of Jan. 30. The bonds are first sold to the banks.
Around 725 billion euros of demand exceeded that funding by a record 10 times, Reuters calculations using data from debt management offices and IFR show.
Data on Tuesday showed the euro zone economy stagnated last year. Money markets have priced in a first European Central Bank rate cut in April, boosting sentiment towards bonds.
The magnitude of demand for government bond sales in January surpassed that recorded by the COVID-19 pandemic, when the ECB bought trillions of euros of debt to cover borrowing costs.
“It’s really a surprise, given that everyone is talking about the next fountain wall,” said Maric Post, head of Belgium’s debt agency.
On Jan. 9, Belgium registered a record €75 billion request for 10-year bonds, raising €7 billion.
Another notable deal is Spain, which saw the highest demand ever for an individual government bond at 138 billion euros and raised 15 billion euros through 10 a. m. debt sales, one of its two largest displays in history.
Lee Cumbes, head of EMEA debt capital markets at Barclays (LON:BARC), said the end-of-year bond rally, when many investors had already closed their accounts, meant that those who had missed the opportunity now They were readjusting their positions by engaging in debt sales.
The Belgian Post added that “the amount of cash that is already outstanding has probably been underestimated. “
Bond markets posted their record two-month gain in November-December, recovering from their earlier slump.
Some long-term companies have placed larger orders than last year, Barclays’ Cumbes noted.
OUT OF THE WOODS?
Many governments saw higher demand from investors outside the euro zone, BofA said, highlighting the potential for the bloc to draw back foreign investors as it leaves behind its negative rates era.
For all the worries around high funding needs, investors noted governments paid limited additional yield on outstanding bonds to lure buyers.
“Because of the high demand . . . sovereigns haven’t had to offer a surplus issue premium to sell their gigantic volumes of issuance,” said Roger Hallam, global head of rates at Vanguard, which manages $8. 2 trillion in assets, with a Spanish-language firm. and Greek values. Obligations.
With the eurozone home to some of the world’s largest government bond markets, strong investor appetite is a sign globally as near-record investment desires challenge borrowers.
As the ECB reduces its bond holdings, markets would likely have to absorb a record €675 billion in debt from the bloc, Barclays estimates.
U. S. Treasury yields fell on Monday after the government said it planned to borrow less in the first quarter than initially anticipated. Uncertainty over monetary policy in Japan has weakened demand for bond sales.
Traders were cautious, noting that auctions, where governments sell most of their bonds, have not gone as well.
“That doesn’t really resonate the same message (as the syndications),” said BofA’s head of EMEA linear rates trading Kal El-Wahab.
He said that metrics such as the average cutoff price – the lowest price accepted for an auction – and the level of overbidding – how much higher the bonds price relative to those outstanding – are lower than last year’s average.
With demand for bonds high, investors also warn that hedge funds, which only receive a small share of governments’ debt sales, may be overstating their demand to get better allocations – a long-standing issue that skews demand figures.
Given the uncertainty surrounding this year’s elections and financial policy, Barclays’ Cumbes said he needed governments to make more investments sooner.
“There’s going to be a lot of activity, a lot of fundraising to do, a lot of countries competing for money,” he added.
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