German Bond Sale Signals Trouble Ahead

As the FT reported yesterday:

A German sovereign bond auction failed on Wednesday as investors shunned one of the most liquid and safe assets in the world in a warning for governments seeking to raise record amounts of debt to stimulate slowing economies.

The fate of the first eurozone bond auction of 2009 signals trouble ahead as governments around the world hope to issue an estimated $3,000bn in debt this year, three times more than in 2008.

The 10-year bonds failed to attract enough bids to reach the €6bn the German government wanted. Bids of €5.24bn, a cover of only 87 per cent, amounted to the second worst auction on record in terms of demand.

Ouch. So despite all the deflationary depression scenarios going about, investors are no longer piling into bonds at these (ridiculously) low yields apparently. From the same article:

Analysts said the vast amount of supply is deterring investors and a growing number of countries, including those with deep and mature bond markets, such as Germany, the UK and Italy, are struggling to attract buyers.

The Netherlands has seen bond auctions fail, the UK and Italy have been forced to offer investors higher yields to meet their auction targets, while Spain and Belgium have cancelled offerings because of a lack of demand.

The German finance agency admitted that investor appetite for government debt had waned, although insisted the auction was “not a disappointment”.

I’ve mentioned the weak prospects for bonds before: in essence the government bond market has elements of a Ponzi Scheme and the cost to protect against default of governments are surging. I’m sticking to the opinion to be bearish treasuries here and will add some to exisiting shorts.

—— This is an opinion on the state of financial markets and the opportunities it provides by quirijns.com. It is not investment advice and not a substitute for your own judgment. When taking on any investment, make sure to have a first aid kit at your disposal that is jammed with tranquilizers and sleeping pills, as you’ll need it. It also comes in handy for other possible disappointments in life. History is not a guide to the future, nor is anything else. Any sane person knows that there’s no sure thing except death and taxes. Fortunes are made and lost each day in this arena. If you can’t stand that heat, please stay out of the kitchen.