Cyprus’ first 30-year bond sale was overloaded with orders on Wednesday, with high demand for such long maturities showing just how much Europe’s bond market is adjusting to expectations of persistently low interest rates and central bank stimulus.
The island nation began marketing five-year and 30-year bonds on Wednesday, and already demand has exceeded 9 billion euros, split evenly between the two maturities, bankers said.
The demand for 30-year debt from a country that needed a bailout from the European Union and International Monetary Fund just five years ago is remarkable and says as much about the state of the European economy and bond market as Cyprus’ prospects, debt managers said.
Several other euro zone countries have sold super long-dated debt in recent years and the average maturity of government bonds in the bloc is now at the highest level on record at nearly 7.4 years.
“It is a demonstration of the backdrop we are in at the moment and it also shows how far Cyprus has come from the crisis days,” said one of the bankers managing the sale.
Cyprus’s 10-year bond yield fell almost six basis points on the day to 1.51 percent in the wake of the strong demand for the new bond deals. It had touched a one-month high at around 1.61 percent in early trade.
Similarly, Cyprus’s current longest-dated bond, a 15-year note, hit a three-week high of 2.277 percent before dropping to 2.18 percent, lower nearly 8 bps on the day.
Cyprus’ banking sector ran into trouble during the wider euro zone debt crisis, forcing it to accept aid from the European Union and the International Monetary Fund.
However, the country returned to the bond markets in 2014 and has regained an investment grade credit rating from two of the three main ratings agencies.
A successful 30-year debt issue would reflect as much the broader market environment as Cyprus’ recovery, said Commerzbank rates strategist Rainer Guntermann.
“This combination of a view that growth will stay relatively sluggish and inflation will be lower and rates will stay lower almost forever is fuelling this hunt for yield, and investors are taking more risk and duration for pick up,” he said.
As if to underline these expectations of further central bank easing, data from Australia overnight and Germany on Wednesday pushed yields lower across the board.
Better-rated euro zone bond yields were around 2-4 bps lower on the day after Germany’s Ifo economic research institute showed a further fall in German business morale, attributed by an Ifo economist partly to the Brexit delay.
This after data showed Australian inflation slowed sharply last quarter to the lowest in three years, a disappointingly weak outcome that ticks one of the boxes for an interest rate cut perhaps as soon as May.
“The miss in Australian CPI and German Ifo this morning both point in the direction of central banks having to do more, and this is causing the rally in bonds,” said Mizuho strategist Antoine Bouvet.
Germany’s 10-year government bond yield, the benchmark for the bloc, was closing in on the zero mark, and was 3.5 bps lower at 0.007 percent by midday.