Today, Tuesday, for the first time in the new year, the Republic of Austria brought fresh capital to the market. The Austrian Federal Financing Agency (OeBFA) announced that a total of 1.38 billion euros could be flushed into the state coffers by increasing a 10- and 30-year federal bond.
With today’s issue, the lowest yields that have ever been achieved on these bonds were achieved on both papers, said OeBFA boss Markus Stix. The ten-year bond achieved a negative issuance yield of minus 0.399 percent, while the longer-term 30-year bond was plus 0.159 percent.
The latest statements from the European Central Bank (ECB) support the low interest rate level, said the OeBFA boss. The ECB once again expanded the emergency purchase program at its interest rate meeting in December. This is now 1.85 billion. In addition, the duration of the program was extended by nine months until at least the end of March 2022. All these measures would have a supportive effect in view of the veritable flood of government bond issues, which will continue this year so that states can continue to finance the effects of the pandemic, said Stix.
Interest rate spread to German government bonds narrowed further
The interest rate gap between the two papers and the German benchmark bonds has narrowed further. This further improved the financing conditions for Austria. The ten-year bond now has a total volume of over 10 billion euros. The volume of the 30-year bond is currently around EUR 4.4 billion.
Today’s auction was not only the first of this year, but also the first since Brexit. British banks and also US banks that previously participated in the auction via the financial center in London are now handling the auctions via their EU units, for example in Ireland or Frankfurt. Despite the change, everything worked fine, says Stix. So far, Brexit has not had any impact on the composition of primary dealers in Austria.
Stix does not expect any negative effects of Brexit on the domestic bond market in the long term either. “The banks would be badly advised if they left the business to the other European banks,” said the OeBFA boss on Tuesday. The corona pandemic had triggered a sharp increase in government bond issues, which is also good business for banks. (apa)