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Eurozone governments rushed to raise debt earlier this year to take advantage of strong investor demand.
Member countries have sold 200 billion euros of bonds since the beginning of 2024, according to Barclays analysts. January's issuance amount was the highest monthly total on record, and was approximately 20% higher than the same period last year.
Despite the market rally late last year, investors are still rushing into Treasuries, attracted by yields well above levels seen just a few years ago. Meanwhile, governments selling record amounts of bonds are pulling out of deals while investor appetite remains.
“While there was a broad consensus at the end of last year that there would be supply problems, the reality is that January's record supply is being digested very smoothly.” .
He added that new bond issuances at the beginning of the year come with “significant concessions”, meaning higher yields than trading in the secondary market. However, these tightenings were carried out “quite aggressively” as the book was built, as the government received a better price than it had originally expected.
Issuance through syndications (a type of sale that pays banking groups to stimulate demand) was particularly high, at 83 billion euros, about 80% more than in January last year. Syndications can be an opportunistic way for governments to issue bonds quickly, as opposed to bond auctions that are held on a regular schedule.
Rohan Khanna, head of euro rates strategy at Barclays, said: “Markets continue to show an incredible appetite for consumption of European government bonds, largely due to changes in the macro outlook.” He added that he was “surprised” by how quickly Italian and German bond sales came this week.
The eurozone has issued around 54 billion euros of government debt this week alone, but the announcement of eurozone inflation figures, the US Federal Reserve's interest rate meeting and a series of jobs data that could confuse markets. , an unusual move for a busy week on the economic calendar. .
“We think European governments are being opportunistic and can't get this done fast enough,” said Imogen Bakula, NatWest's head of non-dollar rates strategy, adding that this week's level of issuance. He said he was also surprised.
European governments will need to sell large amounts of bonds this year. The investment arm of Italian insurer Generali said its issuance this year, excluding redemptions and the European Central Bank's purchase program, will reach 680 billion euros, 7% more than in 2023, and that “supply fatigue” will set in as the year progresses. Expect. .
Markets are already pricing the ECB to cut interest rates by more than five quarter points by the end of the year, boosted this week by weaker-than-expected inflation data from Germany and France. Eurozone consumer price growth slowed to 2.8% in January.
Mohit Kumar, a strategist at Jefferies, said higher yields than in recent years are “attracting investors who have been away from bonds for years,” while money market funds are attracting large amounts of money. He said he was waiting. .
Spain's new 15 billion euro 10-year bond attracted bids of 138 billion euros, a record amount for a private government bond. Belgium then received a record 75 billion euros in a 10-year bond auction, and Italy received 91 billion euros in a 30-year bond sale, Italy's largest order intake so far in 2021.
