By Todd Buell
FRANKFURT (MNI) – Germany is unlikely to issue a 30-year linker
this year, because inflation expectations and market conditions are not
appropriate for such an offering, Carl Heinz Daube, head of Germany’s
Federal Finance Agency told Market News International Thursday.
Market conditions have also made it unlikely at present that the
Finance Agency, which manages Germany’s debt issuances, will recommend
to the government that it issue a foreign currency bond, Daube said in
an interview in his office on the outskirts of Frankfurt.
He said it is too early to know the market impact of Germany’s
prohibition on naked short-selling of Eurozone government bonds and CDS.
Despite two under-subscribed bond auctions this quarter, there is
no risk to German issuance this year, Daube insisted, noting that
Germany had experienced such auctions in previous years as well.
A cut in anticipated new borrowing earlier this year is not
included in the government’s issuance calendar, Daube noted, hinting
that this could mean a reduction in total German issuance in Q4.
However, he cautioned that it is too early to make such an assessment
with any certainty.
Daube has suggested in the past that the government would issue a
30-year linker this year to expand its inflation-linked curve. Now,
however, he said: “I think that given the economic data and the facts
about inflation as of today we will stick with the three outstanding
linker issuances we have right now.”
Germany currently has linkers in circulation maturing in 2013, 2016
and 2020.
“As of today it doesn’t look like there is a huge opportunity this
year for more than a ten-year [linker] due to the pricing level and the
saving advantage,” he stated. But, “We are continuously monitoring
market conditions,” he reminded.
Last month, Daube told MNI that the agency had come close to
recommending that Germany issue a foreign-currency bond. But, currently
“the arbitrage has changed…it’s in the wrong direction now,” Daube
noted.
Thus, at present “we see no reason for proposing to [the
government] that it go for a US dollar bond or something similar.”
Daube said it was too early to know the market impact of Germany’s
recent decision to prohibit naked short selling of Eurozone government
bonds, given the law’s embryonic state.
The law “is now under construction,” he said, pointing out that it
has just been presented to Germany’s banking associations for comment.
“We have to see what the final results will be in a couple of weeks
and then markets can look at it and then be able to interpret it,” he
said.
Germany has had two bond auctions go uncovered this quarter, on
April 21 and May 26, yet Daube insists that “as of today I can see
absolutely no challenge” maintaining the issuance calendar.
Daube reminded that Germany has always had some auctions go
uncovered and conceded that a risk to Germany’s “reliable and
transparent” issuance style is that on a particular day the market may
not be inclined toward a particular issuance.
The government also sells its securities on the secondary market
and there it can sometimes find better conditions than on the primary
market, a spokesman for the Finance Agency added.
Pressed if Germany would consider changing its issuance calendar to
take advantage of favorable conditions, such as current record-low
yields on some securities, Daube said, “I think one of the major reasons
for the benchmark status of Germany is – in addition to the high
credit-worthiness of the country – that our government sticks to its
transparent and predictable issuance calendar.”
“This really has paid off in good and bad times,” he affirmed.
And in the future, “we will stick to our issuance style and will
not change anything. It has proven to be very successful and I think if
we were to change the calendar just to be opportunistic, it would send
the completely wrong signal to the market.”
For the current year, Daube noted that the issuance calendar does
not take into consideration the cut of nearly E6 billion in Germany’s
current 2010 budget compared with the one proposed late last year.
Thus, “If the government sees a need for changing the issuance
calendar, we will do so,” he assured.
“But it’s far too early to give complete details because in these
volatile markets it is hard to predict and we are not under pressure to
adjust anything,” he assured.
Speaking about fears of inflation in Germany, Daube said, “I can
understand that for historic reasons the man on the street is worried
about inflation,” but looking at it in economic terms “we see at present
no risk of huge inflation in the near future.”
Therefore, the agency will stick to its plan of issuing E3-4
billion in inflation-linked securities per quarter, he said.
With regard to the euro’s recent sharp drop, “I do not see a
particular risk,” Daube said. “Sometimes on financial markets you have
to take a step back and look at the whole picture.”
–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com
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