ECONOMY

Dash for 30-year Cyprus bond shows lengthening euro debt horizon

dash-for-30-year-cyprus-bond-shows-lengthening-euro-debt-horizon

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 the 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 per se, debt managers said.

Several other eurozone 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’ 10-year bond yields had hit a one-month high of 1.61 percent in early trade on Wednesday, but as details around demand for the deal emerged, that yield was five basis points lower on the day at 1.52 percent on the vote of confidence from investors.

Similarly, Cyprus’ current longest-dated bond, a 15-year note, hit a three-week high of 2.277 percent before dropping to 2.19 percent, lower 6 bps on the day.

Cyprus’ banking sector ran into trouble during the wider eurozone debt crisis, forcing it to accept aid from the EU and the IMF.

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 be as much a reflection on the broader market environment as it is of the country’s own 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.

Better-rated eurozone bond yields were around 2 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.

Germany’s 10-year government bond yield, the benchmark for the bloc, was 2 bps lower at 0.02 percent. [Reuters]