Euro zone bond auctions remain robust

Today several Euro zone countries issued bonds at auction & the results were though expected but staggering and record breaking. The theme behind such auction outcomes, seem to be European Central Bank's (ECB) asset purchase,  that is about to start off with € 60 billion/month.

• Germany has auctioned off five-year government bonds at a negative yield for the first time in its history. Yields recorded -0.8%.

• Portugal sold €1.5 billion of 10 year at further record low of 2.041 percent compared to previous 2.506 percent.

• Sweden, not a Euro zone country but benefited from the recent purchase outlook by the country's central bank. Sweden issued 2022 & 2019 bonds at 0.335 percent & 0.112 percent.

• Demand remained robust as seen in bid to cover ratio. Bid/Cover ratio remained above 2 in all except for Portugal (1.88).

Bond yields interpretation -

• Market is worried about losing money and would like to park it safe even at negative yield. This does not seem to be the case.

• The result looks more like a speculative chase on prices of the bonds in the wake of ECB bond purchase. This may not bear well over longer term once such programme expires or market fails to push further.

• If the market is pricing for heavy deflation ahead, this is very worrisome. Inflation prints in coming months will remain at focus.