German bund auction “shocking”, says Fidelity’s Simner

Wednesday’s failed bund auction was nothing short of “shocking”, says David Simner, the manager of the Fidelity Funds Euro Bond fund.

Considered the safest economy in the eurozone, the news that Germany was forced to retain a large portion of the 10-year bunds auctioned yesterday “sent a shiver down the collective spine of the investor community”.

However, Simner points to Germany’s history of bund auctions which have failed in this manner and argues that this particular occasion has been inspired by “a continuation of the balance sheet strains and shrinkage that has been observed over the past few quarters”.

This was “coupled with a softening of risk appetite from the banking community and general tailing off of liquidity in the market has conspired to generate the ugly headlines,” he adds.

The eurozone requires approximately €800 billion (£691 billion) to sell in the primary market across 2012 against €575 billion in redemptions, highlighting the need to attract capital back to Europe.

Simner argues that while yesterday’s results were unhelpful to the eurozone’s current situation, “it’s far too early to announce some sort of end to Germany benefiting from the flight-to-quality bid”.

To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here.