Thursday, November 24, 2011

EU contagion spreads as Germany holds a bond auction and few investors come! (Video)

Bid to cover ratio of .65 in Germany 6 billion euro 10-year government bond auction!

The bid to cover ratio in a bond auction is a key indicator of investor interest in an auction, appetite for the issuers bonds at current yields and most of all belief that the issuer and guarantor of the debt is a good bet at that yield.

It is the concept of risk and reward in one of its most basic forms.

On Wednesday Germany held a 6 billion euro 10-year government bond auction that should have been ordinary and uneventful.

It turned out to be anything but as only 3.6 billion euro of the bonds were bid for resulting in a bid to cover ratio below 1 at .65.

As a result the entire bond offering was not sold, in what can only be called a potentially major turning point in the life and times of the Eurozone when its most stable member Germany is unable to sell its sovereign debt!

As described in this video the global economic and fiscal contagion that is feared will spread from the weakest members of the EU, the PIIGS, seems to have spread its rot to the very core of the EU, Germany!

What this auction result says is that current German bond yields are insufficient to whet the appetite of investors and will have to move higher. This will in turn move the bond yields for other sovereign debt issuers higher as they move off of the German rates.

At a time when the last thing any in-trouble, soon to be in trouble or not yet in trouble nation needs are higher borrowing costs, it looks like that is exactly what they will be getting!

The one country for the most part still immune? The United States!

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