In the sovereign space, yesterday afternoon saw some selling in the periphery, led by Greece after reports that the country will not be able to complete several pending actions in time for the next Troika review. Quelle surprise!
And that sell-off continued today. New Greek 10-year yields were a further 15bp wider at 6.50% today, having been just above 6% on Monday.
In the second tier, ahead of the Tesoro’s five and 10-year taps tomorrow, Spanish 10-year yields were 3bp wider at 2.57%, having been at 2.48% yesterday morning and within spitting distance of the 2.45% euro-era lows from last week.
Ten-year BTPs were 5bp wider at 2.80%, some 13bp off the euro-era lows following a much weaker-than-expected Q2 GDP print of -0.2% q/q versus consensus of +0.2%.
That should have all augured fairly well for the German Finance Ministry’s tap of the OBL169 given the flight-to-quality price action seen in Bund and OBL contracts in the run-up to the auction. And so it proved, although the small size of the auction and some decent RV may also have helped.
Germany allotted a total of €2.491bn with a bid-to-cover of 1.6, down on the 2.1 seen at the last tap of this bond on July 2, with the Bundesbank retaining €509m - 17% - for market operations. The real cover ratio was 1.31:1, easily avoiding the sort of technical failure we have seen for some German auctions over the early part of the summer.
Pricing was also strong, with the average price of 101.04 - with just a one-tick tail - coming three ticks over the offered side of the market as the bidding deadline expired.
In the UK, the DMO offloaded £1.5bn of its 0.125% 2019 index-linked Gilt with the minimum of fuss. The bid-to cover-ratio came in at a healthy 2.44:1 on a real yield of -0.867%, which was around 1.5bp through the offered side of the market as the bidding deadline expired.(Reporting by IFR’s Adam Parry.)