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Weak German bonds sale fuels Europe debt crisis fears

11-24-2011 15:51 BJT

BERLIN, Nov. 24 (Xinhua) -- Germany failed to sell more than a third of an issue of 10-year bonds Wednesday, increasing worries about the European debt crisis.

Investors only took 3.9 billion euros (5.2 billion U.S. dollars) of the total offer of 6 billion euros (8 billion dollars) in German bonds, normally considered a safe haven for investments.

The weak market response further fueled concern the debt crisis is spreading to Europe's core economies after France saw a sharp rise in its borrowing costs last week.

"I've never experienced Germany being unable to place such a high percentage of its bonds at auction," media quoted Rudolph Hessler of HSBC Trinkaus bank as saying.

Germany's federal finance agency, however, played down the market performance, calling it routine and saying it was no problem.

Finance ministry officials said Germany's ability to raise funds from the market had not been affected and they were confident about selling out the remaining 2.1 billion euros at the next auction.

Europe's leading economy has rarely faced any trouble selling its bonds, commonly regarded as gold standard securities. This time, analysts attributed the below-expectation performance to low yield rates and overall weak market confidence.

Yields for the 10-year bonds were set at 1.98 percent, one of the lowest in recent history and much lower than the 3.25 percent for the last issue of German 10-year bonds.

The poor sales also added pressure on German bonds in secondary markets. The yield of 10-year German bonds climbed by a 0.2 percentage points to 2.08 percent on the same day.

The debt burden of Germany, the world's fourth largest economy, has already climbed to 81 percent of the nation's gross domestic product. Increasing borrowing costs could exert strains on fiscal policies and economic growth.

Also on Wednesday, German Chancellor Angela Merkel hit back at the European Commission's proposal to create eurobonds, saying it would not pull the eurozone out of the current debt crisis.

Speaking in a parliamentary debate, Merkel said it was "extremely worrying and inappropriate that the European Commission is changing the focus to such eurobonds" after she stressed Tuesday it was not the right time to discuss the establishment of eurobonds.

Merkel said the idea would send a signal that some member states' structural problems could be solved by borrowing more money.

Hours after Merkel's speech, European Commission President Jose Manuel Barroso unveiled a set of draft regulations aimed at laying a legal basis for tougher supervision and management of eurozone national fiscal policies.

According to Barroso, the eurobonds are "an example of reinforced governance, of a strong will to live together in the euro area, and a good example of discipline and convergence."

However, some observers said Germany still feared that, once eurobonds were issued, the country's hard-earned low borrowing costs would sharply rise, and its financial reputation would be dragged down by other overspending nations.

Editor:Wang Xiaomei |Source: Xinhua

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