Funds compete with the European Central Bank as idle funds stimulate record bond demand
There is so much cash in Europe that there are not enough bonds in circulation.
The idle liquidity of the Eurozone economy this month reached 3.2 trillion euros, a record high. A large part of this is to chase new debt issuance. The EU’s first social bond issuance set a record of 233 billion euros.
In the coming week, Germany and Italy will be regularly scheduled The total amount of bonds sold will be slightly more than 12 billion euros, while the large redemptions and interest payments of more than 50 billion euros in the same period can be easily digested through reinvestment.
The funds have to compete with the firepower of the European Central Bank to buy bonds. The market expects the Fed to maintain its quantitative easing policy at the next Thursday meeting and expand the policy before the end of the year. The current discussion is mainly about what measures the Fed will take.
Most economists expect that a large-scale bond purchase plan will be announced in December, increasing by 500 billion euros to 1.85 trillion euros, and extending for six months to the end of next year.
This means that the pressure on demand for EU bonds will not ease, and the unexpected sales of Italian and Greek bonds in the past week also reflect this pressure. The benchmark bond yields of these two countries both hit historical lows this month, depressing their premiums relative to safe-haven German bonds.
In order to meet the demand for yield, Italy sold bonds at the lowest price in 18 years.
Commerzbank strategist Christoph Rieger said, “The market believes that this week’s bond issuance marks the beginning of the establishment of the irreversibility of the common safe assets of the euro, which increases the proportion of the euro’s general convergence.”
According to data from Commerzbank, the total bond issuance in the euro zone this week will reach about 12.5 billion euros. Italy and Spain will pay more than 51 billion euros in bond redemptions and coupons next week.
The United Kingdom will hold three regular Phnom Penh bond auctions, selling a total of 6.75 billion pounds, and the Bank of England will repurchase 4.4 billion pounds of bonds through three operations.
The data released next week should give investors a good understanding of the economic situation in the region after the surge in cases; the third quarter growth data in the Eurozone and Germany will be consistent with October inflation The data are released together; the German Ifo data in October will also provide clues to the company’s prospects.
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