Germany cut its fourth-quarter debt-sale plan, the second quarterly reduction this year, after tax receipts boosted government coffers and reduced Chancellor Angela Merkel’s net new borrowing needs.
The government will cut gross borrowing in the last three months of this year by euro 16 billion ($21.6 billion), a 24 per cent reduction from the initial amount, to euro 52 billion, the Federal Finance Agency said in an emailed statement on Tuesday. The cuts mean that Merkel’s government trimmed euro 27 billion in debt sales this year from its original plan to euro 275 billion.
“The very low yields on the market present favourable refinancing conditions at the moment,” Finance Agency chief Carl Heinz Daube said in an interview. “Interest rates would, however, have to remain permanently low to achieve a lasting relief in interest expenses.”
German bonds stayed lower after the announcement. The yield on 10-year securities rose six basis points to 1.89 percent as of 9.51 am in London. That’s below the average of 3.78 per cent in the past decade. German bund yields fell to a record low of 1.64 per cent on September 23 as investors sought a haven amid signs the euro-region debt crisis, which started in Greece, in 2009 is worsening.
Tax Receipts
Export-fueled economic growth of about 3.6 per cent this year and 26 straight months of falling unemployment have boosted corporate and income tax receipts, aiding Merkel’s efforts to rein in net new government borrowing. Merkel is committed, by a debt “brake,” to cut the federal deficit by half a percentage point each year until 2015.
Merkel may be able to push down this year’s compound national deficit to 1.5 per cent of gross domestic product after it reached 3.3 per cent last year, above the three per cent threshold set by the European Union for all nations using the euro.
Next year, the government aims to sell about euro 270 billion of debt, the draft budget shows. Net new federal borrowing will fall to euro 27.2 billion compared with about euro 30 billion this year.
In the fourth quarter, the agency will sell euro 39 billion in bonds, also called capital-market instruments, and euro 13 billion in bills, or money-market instruments. The agency also said it intends to issue about euro 2 billion to euro 3 billion of inflation-protected bonds in the last quarter of 2011.
German bonds are the best performer among sovereign debt issued by euro-region nations this year as investors sought the safest assets as the debt crisis deteriorated.
German government bonds handed investors an 8.3 per cent return this year, compared with 6.3 per cent from debt issued by France, 6.1 per cent from Finland, and a 41 per cent loss from Greek bonds, according to indexes compiled by Bloomberg and the European Federation of Financial Analyst Societies.
