LONDON / BERLIN – Germany on Tuesday ramped up the issuance of bonds for the second quarter and said it would launch its first 15-year bonds through a bank syndicate, the first agreement since 2015 as a sign of the length of time taken to secure funding to fight the coronavirus.
Europe’s largest economy has introduced a spending package worth up to 750 billion euros ($ 808.4 billion) and is taking on new debt for the first time since 2013 to protect its economy from damage caused by a virus outbreak.
The German Finance Agency said it had increased its debt in the second quarter by 43 billion euros to 130.5 billion euros – issuing new seven-and 15-year bonds for the first time.
This is the second time in three weeks that Germany has been forced to adjust its publishing plans, said Nordea chief analyst Jan von Gerich. He said the coronavirus crisis had more than doubled Germany’s second quarter gross loan needs.
The country’s debt management agency said there was still uncertainty about how the issuance for the second half would develop.
Meanwhile, the new 15-year bonds will mark the first sale of German government bonds through bank syndication since June 2015, when using the process to sell inflation-related bonds for 30 years, the debt agency said.
“It’s interesting that Germany is pulling out all the stops to finance programs to combat the coronavirus outbreak – using financial markets and creating seven- and 15-year bonds,” said ING senior level strategist Antoine Bouvet.
The German debt agency said it had chosen to syndicate because this would be the country’s first 15-year bond. This will mature in May 2035.
The news shocked several people in the market, considering that Germany traditionally relied on auctions to sell its debt.
“If Germany needs to start syndication, it just shows a lot that they need to borrow. And this is only the second quarter, “said a banker based in London.
Another banker at Germany’s main dealer said Germany chose syndication to directly put the problem of long-term debt in large volumes directly “with the final investor, rather than just putting it in the dealer book.”
Bond issuance through bank syndicates, a method often used by France, Spain and Italy, can also help publishers access a variety of investors.
The euro zone government collected 27 billion euros through syndicated transactions in March, more than four times the amount raised in the same month in 2019.
Ireland raised 6 billion euros on Tuesday in the biggest bond sale for a decade. Cyprus also came to the market.
Analysts also pay attention to the increasing use of short-term bills as part of the German financing plan.
Bubills’ publishing volume will increase by 32 billion euros to 72 billion euros in the second quarter.
“Most of the increase in issuance will be done through T-bills, implying that Germany expects an increase in loan terms to be a short-term problem,” Nordea’s von Gerich said. (Reporting by Thomas Escritt in BERLIN and Abhinav Ramnarayan, Yoruk Bahceli and Dhara Ranasinghe in London; Writing by Dhara Ranasinghe; Editing by Emelia Sithole-Matarise)
to request modification Contact us at Here or [email protected]