UPDATE 2-Demand for German, European Union debt sales weakens in volatile market
(Recasts, adds details on EU bond sale, context, comments)
By Yoruk Bahceli
Oct 11 (Reuters) - Germany and the European Union saw demand weaken in long-dated debt sales that raised a combined 14 billion euros, demonstrating the challenges for borrowers in a market rattled by the ramifications of Britain's budget and the potential for further debt issuance to tackle the energy crisis.
Germany raised 3 billion euros from a 30-year bond and kept a further 1 billion euros on its own books, according to a lead manager, well below the 6 billion euros banks including Commerzbank and UniCredit had expected.
It was a relatively high level to retain for a syndicated debt sale. Demand, at over 5.9 billion euros, was less than two times the amount Germany offered to the market, much lower than usual.
Germany was also unable to lower the yield on the bond, which priced for a 2.5 basis points spread over its outstanding August 2052 bond, as initially announced.
"If Germany had a blowout book we would have tightened the spread... and a smaller amount could have been retained," said a banker on the deal, who asked not to be identified.
Asked why demand was weak, the banker said, "I think the ongoing volatility in the UK is a bit problematic. When you look at longer duration there's been a lot of pressure on it. Yesterday was a pretty ugly day."
The issuance came to market after moves in UK government bonds continued to rattle bond markets, after 30-year yields jumped over 30 basis points on Monday as investors remained unconvinced by the government's drive to shore up fiscal credibility.
A report that Germany may back further joint European Union debt issuance in response to the energy crisis, which sent German bond yields higher, did not help either, the banker said.
The European Union itself was raising 5 billion euros from the re-opening of a 2029 bond and 6 billion euros from a new 20-year bond backing its recovery fund and macrofinancial assistance programme, according to a lead manager.
The bonds saw over 16.5 and 27 billion euros of demand respectively. The amount by which demand exceeded the issuances was the lowest on record since the EU launched issuance backing its recovery fund, according to Reuters calculations using European Commision data.
Tuesday's deals show that "the issuer has to pay a price if they want to issue long," said Jens Peter Sorensen, chief analyst at Danske Bank, who estimated the EU paid a much higher concession over its outstanding debt for the 20-year bond than in previous episodes of volatility.
"What we hear from most investors also with this one is that most of them would like to be in shorter (dated bonds) given all the risk there is. People have lost so much money on the long end." (Reporting by Yoruk Bahceli, additional reporting by Harry Robertson; Editing by Amanda Cooper, William Maclean, Alexandra Hudson)
