[Updated] German 10-Year Bond Auction Fails for Second Time

This is such an interesting story, which is why I’m surprised it hasn’t gotten more play:

A German sovereign bond auction failed yesterday amid growing danger signs for governments as they attempt to raise record amounts of debt to pay for fiscal stimulus packages and bank bail-outs, writes David Oakley .

It was the second successive failure this year of a 10-year Bund auction – usually one of the most sought-after – as demand fell 20 per cent short of the €6bn (£5.4bn)the German government wanted.

…The outcome signals trouble for governments as a record $3,000bn of debt is ex-pected to be raised this year in sovereign bonds – three times that of 2008.

German bond auction failures were rare until the credit crisis. Before the seven that failed last year, the last German bond auction not to reach its target was in July 2000, after the dotcom crash.

Carl Norrey, head of Eur-op-ean rates trading at JPMorgan said the restricted demand for this latest issue – sold at a yield of 3.28 per cent – highlighted the price sensitive nature of government bond markets as investors have ever more debt to choose from. "Price is all important in a market with an enormous supply."

With spreads between German yields and those of other eurozone countries close to record wides, investors bought other eurozone paper this week be-cause of the extra premiums they could obtain for this debt.

More here.

[Update] Alea argues that there is less to this than meets the eye.