Investors eschew bonds amid eurozone crisis

A German five-year bond issue on Wednesday was undersubscribed, figures released by the Bundesbank showed, a sign that even Germany's benchmark debt has not been spared by the latest eurozone crisis.

Investors eschew bonds amid eurozone crisis
Photo: DPA

Last week, an issue of 10-year German bonds, which are the eurozone reference, also met with offers for less than was available, amid heightened market tensions stemming from the Irish debt crisis.

This time, the German agency which manages the country’s sovereign debt received offers for just €4.55 billion ($5.96 billion) after tendering five-year bonds worth a total €5 billion, the central bank data showed.

In the end, the agency sold “Bobl” bonds worth €4.13 billion at an average rate of 1.73 percent, during the second round of a bond issue first launched on September 22.

UniCredit fixed income strategist Luca Cazzulani told AFP the main factor behind the result was that the market environment was not so nervous that investors would pile money into low-yield government bonds.

He pointed out that once the European Central Bank (ECB) tightened monetary conditions, something expected later this year, “when you have a German bond yielding barely 1.8 percent it’s hardly a good deal.”

Cazzulani said he was interested in seeing the results of a French bond offer on Thursday that includes an issue with a two-year difference in maturity from the German one to see if some kind of trend was emerging.

Of 70 German bond issues this year, it was only the fifth to be undersubscribed, and the result immediately drove up the rate on 10-year bonds to 2.769 percent from 2.670 percent at the close of trading on Tuesday.

Pressure has grown recently on Greek, Irish, Italian, Portuguese and Spanish government debt, while German bonds, the benchmark for high quality in the eurozone, normally benefit from full investor confidence.

But growing perceptions that strong eurozone countries might in future have to guarantee bailouts for the weak may begin to weigh on the stronger countries’ credit standings.

“Investors are making the connection that at some point if anything goes wrong, it will be up to the countries that have given guarantees to pay the money,” Cazzulani noted.


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German online bank N26 shutters US service

German online bank N26 said Thursday it was closing its operation in the United States next year, as regulators in Europe place the "fintech" start-up under increased scrutiny.

The N26 logo on a bank card.
The N26 logo on a bank card. Photo: picture alliance/dpa | Christophe Gateau

N26’s 500,000 customers in the US would be able to use their services until January 11th, 2022, the bank said in a statement, after which it would cease to operate in a market it first entered in 2019.

Instead the Berlin-based operation would “sharpen its focus on its European business”, where it already operates in 24 countries and is exploring expansion into more eastern European markets.

N26 said it would also look to launch new “investment products in the coming year” to sit along side its current account service.

Founded in 2013, N26 offers free, online-only banking services to around seven million clients and is one of Germany’s most high-profile financial technology or “fintech” firms.

In October, the bank raised $900 million from private investors, and announced a plan to hire a further 1,000 employees to reinforce its product development, technology and cybersecurity teams.

READ ALSO: German online bank N26 to create 1,000 jobs

At home, N26 has been in the crosshairs of the German banking watchdog BaFin since 2018 after a local news media investigation found that it was possible to open account with forged IDs.

Earlier in the month, the regulator said it was upping its oversight operations at N26, appointing a special representative to monitor the bank’s progress towards solving issues in “risk management with regard to IT and outsourcing” identified by BaFin.

The regulator also limited the number of new customers N26 could take on to 50,000 a month until the shortcomings were addressed.

N26 was already being monitored by BaFin over failures in the start-up’s anti-money laundering system.

BaFin issued N26 with a 4.25-million-euro ($4.8-million) penalty earlier this year in connection with around 50 “suspicious transactions” the bank failed to report promptly enough.