2009-01-09 EU News Highlights

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Trichet Sees ‘Significant’ Economic Worsening, II Magazine Says
European Confidence Drops to Record Low; Unemployment Increases
German Exports Drop 10.6% as Recession Hurts Orders
German Ministry Seeks $136 Billion Fund to Ease Company Credit
German bond sale’s fate signals trouble ahead

‘Bond failures’ are not all that uncommon in the eurozone and more of a debt management issue at this point.

However a rising deficit due to falling revenues and rising transfer payments as GDP weakens could cause the ability to fund to deteriorate rapidly.

Bank failures that require national government funding don’t help either, and the eurozone seems long overdue for multiple major bank failures.

German Builders See 2% Drop in Revenue in 2009, HDB Group Says
Steinmeier Casts Doubt on German Deficit Limit, Rundschau Says
Sarkozy Says France to Provide More Capital to Banks
Spain December Jobless Claims Rise as Economy Enters Recession
European Two-Year Government Notes Decline, Reversing Gains

German bond sale’s fate signals trouble ahead

by David Oakley

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.

Such developments were rare before the credit crisis. Before the seven German bond auctions that failed last year, the last German bond auction to fail was in July 2000 after the dotcom crash.

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”.

Meyrick Chapman, a UBS fixed-income strategist, said when a German bond auction failed it “does suggest there may be trouble ahead for other governments wanting to raise money in the debt markets. Before the financial crisis, German bond auctions just did not fail.”