Germany found strong demand in a 3.1 billion euro sale of five-year bonds on Wednesday, thanks to unease over Spain's future that has pushed investors back to less risky debt despite the low yields on offer.
Madrid's resistance to asking for a bailout to tackle its debt problems has caused some investors to question the rally in riskier assets seen in August and September and start looking for shelter again in the safe haven of Bunds.
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"This result has likely been driven by uncertainty surrounding the Spanish request for a sovereign bailout and the German redemption and coupon flow this week," said Lyn Graham-Taylor, strategist at Rabobank in London.
A maturing German bond and related coupon payments will return around 18 billion euros to investors - much of which was expected to be reinvested in the country's debt over the coming days.
Wednesday's bonds were issued at an average yield of 0.53 percent, and bids for the 4 billion euros issued totaled 6.958 billion, leaving German authorities to retain 22.2 percent for sale into the market at a later date.
The bid-to-cover ratio of 2.2 was above the year's average of 1.99 and compared very favorably with the 1.4 seen in September when the bond was launched at a yield of 0.61 percent.
Recently, demand for German debt at auction has been shaky because large swings in yields, caused by acute sensitivity to the prospect of a Spanish bailout, were acting as a deterrent to long-term investors.
Two weeks ago a 10-year bond sale failed to attract bids worth the total amount on offer.
However, many investors have since withdrawn from the market awaiting greater clarity from Spain and bonds have settled into a more stable range.
(Editing by John Stonestreet)