Germany's Two-Year Funding Cost Hits New Low

        By Emese Bartha
        FRANKFURT--Germany's two-year funding costs slipped deeper into negative territory at its debt auction Wednesday as investors remain on edge over Greece's finances.
        The German Finance Agency sold 3.290 billion euros ($3.58 billion) of the March 2017-dated Schatz, or treasury note, at an average yield of -0.28%--a new record low in the two-year segment--down from -0.24% in March, the Bundesbank said.
        The negative yield is already a relatively frequent phenomenon at European debt auctions, with investors effectively paying to a state, in this case Germany, for the privilege of buying its debt. Demand was solid, totaling EUR6.93 billion from investors.
        Eurozone government bonds have strengthened in recent months, particularly following the European Central Bank embarking on a monthly EUR60 billion public sector purchase program in March to drive inflation higher to aid the economy recovery.
        The Schatz is too short to be part of the ECB's purchases but benefits indirectly as the purchases pull along maturities outside the bond buying time horizon.
        "Even though the ECB will buy bonds only at yields up to the deposit rate of -0.20%, this level presents only a soft floor for yields: Yields can still fall further," said Jan von Gerich, chief strategist at Nordea.
        The Schatz on offer is an existing issue that was reopened.
        The following are details of the auction, with amounts in Euros. Figures in brackets are from the previous auction held March 11.
        The Bundesbank said all bids at the lowest price were accepted and the non-competitive bids at the weighted average price were also all satisfied.
        The amount retained for market-tending purposes was about EUR710 million, bringing the total issue size to EUR4 billion, as previously announced.
        The German Finance Agency manages the country's federal debt, while the Deutsche Bundesbank is responsible for conducting the debt auctions.
        -Write to Emese Bartha at emese.bartha@wsj.com
        (END) Dow Jones Newswires

        April 08, 2015 06:09 ET (10:09 GMT)

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