Germany slashes debt issuance by 31 billion euros in Q4

GERMANY slashed the volume of federal debt sales planned for the fourth quarter by 31 billion euros (S$44.9 billion) as the government winds down financial support for households and companies hit by soaring energy costs.

Bond issuance will be cut by eight billion euros and sales of bills by 23 billion euros compared with a plan published last December, the federal finance agency said on Tuesday (Sep 26) in an emailed statement. Together with the reduction in the third quarter, that would trim total sales for this year by 45 billion euros to about 500 billion euros, still a record.

“The reduced issuance volume results from lower financing needs of the federal budget and its special funds, especially in connection with the measures taken by the government to address the energy crisis,” the agency said. It also cancelled a sale of inflation-linked bonds planned for November.

The cut in supply may ease pressure on German bond yields, which have risen to multi-year highs on the view the European Central Bank will keep interest rates high for longer to return inflation to target. Long-dated bonds have suffered the most, with 10- and 30-year yields trading at the highest levels since 2011 this week.

Borrowing by Germany’s federal government has soared in recent years, initially due to increased spending to offset the impact of the Covid-19 pandemic and subsequently to help ease the burden from surging energy prices after Russia’s invasion of Ukraine.

After those crises subsided, Finance Minister Christian Lindner, who chairs the fiscally hawkish Free Democratic Party, insisted that Germany’s ruling coalition restore a constitutional limit on federal new borrowing known as the debt brake. He asked all government departments except defence to rein in spending in this year’s budget. BLOOMBERG