Why Europe’s sovereign bonds are on fire right now
Europe’s governments rushed to borrow money this week, drawing record demand from global investors keen to secure bonds with solid yields while they still can.
Central banks and funds from the Middle East and Asia were only too happy to lend to the likes of Spain, Italy and Belgium, all of which reported historic order books. Global money is grabbing the yields on offer before expected interest-rate reductions later this year, with a bond rally across the region on Friday as markets added to bets on cuts.
It’s an encouraging sign for European nations, which are making an early start on funding 2024’s budgets at a time when the region’s central bank has turned from propping up the bond market as a major buyer to shrinking its holdings. For investors, Europe is finally offering a window of decent returns after years of sub-zero rates kept many away.
“International buyers, especially Japan and Chinese investors, are buying much less of US Treasuries than they used to and are diversifying their holdings more to Europe,” said Raphael Thuin, head of capital market strategies at Tikehau Capital, which manages €42 billion. That includes both central banks and pension funds, he said.
Borrowing from governments via banks topped €41 billion ($45 billion) this week, an all-time high, and drove record overall European bond sales at more than €120 billion this week, according to data compiled by Bloomberg. While January typically sees strong demand, analysis of order books points to deeper appetite from Asia and the Middle East.
Take Belgium, for instance. Orders for its 10-year debt were more than 10 times the €7 billion on offer, and nearly one-fifth went to regions outside Europe, compared to about a tenth in a similar sale two
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