Week in FX Europe – Summer Doldrums Increase German Finance Costs

Do not rule out Germany paying its highest 10-year funding costs in a year and a half next week. They will be the only Euro country coming to the bond market with an issue slap bang in the middle of the Euro-annual summer holidays.

Credit rating agency Fitch reaffirmed Germany’s triple-A credit status earlier this week, citing some “overachievements” by Merkel’s right-wing coalition government on the fiscal front. They also happened to mention that various risks related to the Euro-zone crises directly had actually eased.

Improving Euro data has allowed their own bond yields to back up; it’s now becoming more of a global phenomena. Even the Fed’s plan to potentially reduce the size of its bond buying requirements (tapering) is also putting upward pressure on global bond yields. However, at the short end of most Central Banks yield curve, yields remain relatively low, supported by accommodating monetary policies being offered by most major central banks. The ECB’s ‘forward guidance’ stance will continue to anchor short-term yields.

Germany will offer €4b of the current benchmark 10-year, +1.5% May 2023 Bund. This will be the last time that they will tap this particular issue. The new 10-year Bund will be introduced next month. At today’s current levels the German government will be paying up – the secondary market is trading at +1.69%. Because of the holiday season that’s in it, both dealers and investors will be expecting some give and slippage due to the potential lack of interest – besides dealers like the issuer to pay up!


* CNY New Yuan Loans
* JPY Gross Domestic Product
* JPY Bank of Japan meeting minutes
* EUR German Consumer Price Index
* GBP Consumer Price Index
* EUR German Economic Sentiment
* USD Advance Retail Sales
* EUR German Gross Domestic Product
* GBP Bank of England Minutes
* EUR Euro-Zone Gross Domestic Product s.a.
* USD Consumer Price Index
* USD U. of Michigan Confidence

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell