Today Germany struggled to sell its bonds. The German 10-year bund yield rose sharply from 1.92% to over 2.06% as it failed to get bids on 35% of its bunds. As reported in GoldCore

This is one of Germany’s worst auctions since the launch of the Euro with the Bundesbank having to pick up nearly 40% of the 6 billion euros on offer.

The German auction in turn led to further weakness in European equity markets. Asian equity indices followed US equities lower after news of a new US bank stress test and then the poor Chinese manufacturing data.

The bond auction in Germany is a disaster. If Germany has to buy its own bonds, it is frightening to think how other European nations, including France, will fare at bond auctions in the coming weeks.

Reuters went on to report that German Bunds performed worse than US T-Notes or UK Glits. Now we know things are bad 😉

If the crisis spirals out of control, some fear that it could reach a magnitude that would hit Germany as well by sending it into a deep recession. On the other hand, any solution to the crisis is likely to involve a higher fiscal bill for Germany.

“It is a complete and utter disaster,” said Marc Ostwald, strategist at Monument Securities in London. “If Germany can only manage a 0.65 cover in actual terms for what is going to be their next benchmark then what hope for everybody else?”

“It really tells you that the Bund yields are at the completely wrong level … never mind that they are a safe haven. There’s certainly a partial element of ‘they (investors)would rather not have euros’ in there.”

Bund futures were last down half-a-point on the day at 136.75. Ten-year yields were 5.8 basis points higher at 1.969 percent, yielding more than U.S. T-notes for the first time since early October.

UK Gilts were also outperforming Bunds with yield premium for holding 10-year British bonds narrowing to its tightest since August at 15 bps.

On an earlier post we reported by Asia beginning to sell off German Bunds.