Germany and Greece launched syndicated debt sales in a nervous market on Wednesday and saw lower demand than for their previous issuances.
Euro zone bond yields, which move inversely to prices, have risen sharply this week, driven partly by unease following hawkish comments from several European Central Bank policymakers on the future of the bank’s pandemic emergency bond purchase programme (PEPP).
Germany received more than 18 billion euros of demand for the sale of the 5.5 billion euro bond, which priced for a yield of 0.159%, according to lead manager memos seen by Reuters. Its finance agency will retain 500 million euros of the bond, the memos showed.
The deal received less than half the 39 billion euros of demand Germany saw for a 30-year green bond syndication in May though green debt sales tend to see higher demand as they cater to a specialist investor base seeking environmentally-friendly assets.
Peter McCallum, rates strategist at Mizuho, said the German syndication offered “limited value” for investors, as he saw the yield on offer slightly below fair value.
Greece, which tapped outstanding five- and 30-year bonds to raise 2.5 billion euros, received 18.9 billion euros of investor demand, lead managers said, with demand split roughly equally between the two bonds, which raised 1.5 and 1 billion euros respectively.
Demand fell short of the 29 billion euros Greece saw for a 10-year bond tap in June that had also raised 2.5 billion euros.
‘TOUGH TIME FOR GREECE’
The sale came as the gap between 10-year Greek bonds and their German equivalents – effectively the risk premium on Greek debt – reached its widest on Wednesday since May, at 115 basis points (bps).
“It’s a tough time for Greece to issue with people worrying about when PEPP is going to end and that’s clearly to the detriment of demand,” Mizuho’s McCallum said.
The ECB made an exception to purchase junk-rated Greek debt in PEPP last year and has bought a substantial amount of the marketable Greek debt stack since. It only purchases investment grade securities for its regular bond buying programmes.
The spread Germany offered investors tightened from 3 bps over an outstanding bond due Aug. 15 2050, down from around 4 bps when the sale started earlier on Wednesday, according to earlier memos.
Greece priced the shorter-dated bond for a yield of 0.02% and the longer one at 1.675%, cutting the spread to 38 bps and 135 bps over the mid-swap levels respectively, according to lead manager memos, down from around 43 and 145 bps respectively when the sale started.
In syndications, borrowers hire investment banks to sell the debt directly to end-investors, allowing them to target a larger investor base and raise bigger size. They also allow investors to get hold of bonds in size and receive a new issue premium.
Germany, which in the past rarely issued debt through syndications, started issuing bonds more regularly in this format last year as its funding needs ballooned due to the pandemic.