European debt markets shun Germany’s bond issuance

BERLIN - Agence France-Presse

A trader makes a phone call at his desk in front of the DAX board at the Frankfurt stock exchange in this Nov 15 photo. REUTERS photo

Investors shunned yesterday a German 10-year bond issuance, as Chancellor Angela Merkel repeated her objections to eurobonds proposed by Brussels.

Germany received bids for only 3.9 billion euros ($5.2 billion) worth of its 10-year Bund, despite offering 6 billion euros, in what the German Finance Agency called a “reflection of the extraordinarily nervous market conditions.”

Analysts said the eurozone crisis was beginning to seep into the very core of the 17-nation area. The euro dropped sharply on the foreign exchange markets after the auction.

“Perhaps Germany isn’t the safe-haven that many people thought it was,” said UBS currency strategist Chris Walker. At VTB Capital, economist Neil MacKinnon said the European Central Bank was to lend two unnamed banks a total of $552 million to help cover their cash needs.

The auction came hours after Merkel set out her opposition to a pooling of eurozone debt. European Commission President Jose Manuel Barroso unveiled a set of reforms yesterday designed to toughen the policing of member states’ budgets, laying the ground for the potential introduction of so-called eurobonds.

Merkel said she found it “extremely worrying” that Brussels was publishing its eurobond proposal. “This will not work,” she said in a speech in the German parliament.

Meanwhile, the International Monetary Fund (IMF) on Tuesday announced a new lending facility aimed at helping countries protect themselves from contagion during financial crises.

The new tool will be used to aid countries with “relatively strong policies and fundamentals” but whose economies are endangered “during periods of heightened ... stress,” the IMF said.

It allows a country with an actual or potential balance of payments problem to seek immediate aid that can be worth up to five times the value of its IMF quota, over six months. The scheme appeared designed for countries like Italy and Spain, which have huge debt burdens but reasonably sustainable fiscal imbalances.

Based on its IMF quota, Italy could potentially tap the new fund for some 45.5 billion euros ($61.5 billion), while Spain could get 23.3 billion euros ($31.5 billion) over six months