by Vladimir Amrich
WBP Online

Frankfurt - Germany's 10-year borrowing costs increased as the central bank, the Bundesbank, conducted a benchmark auction on Wednesday.

The government in Berlin sold €3.4 billion worth of debt at an auction of bonds maturing in 2022. The average yield on the security, which had a coupon of 1.75%, rose to 1.42%. To fully satisfy investors' demand, the government would have needed to sell 1.8-times more of the 10-year bond.

The last time the Federal Ministry of Finance sold 10-year bonds was on July 11. The average yield recorded at the auction in July was at 1.31% and Berlin sold €4.153 billion worth of debt. Demand for the security exceeded the supplied volume 1.5-times.

The yield recorded at the previous auction was 0.145 percentage points, or 14.5 basis points above the all-time low of 1.165% registered on July 20.

The German government bonds are considered a relatively safe haven as the growth of the biggest European economy proved to be more resilient during the sovereign debt crisis than other major economies. The gross domestic product (GDP) of Germany rose 0.5% in this year's first quarter, while the UK, Italian and Spanish economies have remained in recession.

On July 23, Moody's Investors Service revised the outlook on the "AAA" sovereign ratings of Germany to negative from stable.

Moody's stated that the "rising uncertainty regarding the outcome of the euro area debt crisis" and the increased likelihood that "greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required" as the main reasons behind the change of the rating outlook.

Another rating agency, Standard & Poor's maintained a stable outlook on the top-notch rating of Germany on August 2. S&P believes that the diverse and resilient economic structure of the German economy along with cheap access to capital market funding facilitate a higher debt-bearing capacity than many of its "AAA" peers.

"We project Germany's general government debt ratio to remain in excess of 80% until 2013, before declining to 77% in 2015 as the deficit shrinks," according to S&P.

The ratio of government debt to GDP of Germany was 81.6% in the first three months of this year, according to data from Eurostat, the official statistical office of the European Union.

Fitch also rates the German sovereign debt with the highest grade (AAA).

To contact the author of the story e-mail vladimir.amrich@wbponline.com

Photo: ISIFA