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Higher yields drive record demand for euro zone government debt sales
Published by Global Banking & Finance Review®
Posted on January 31, 2025
4 min readLast updated: January 26, 2026
Global Banking & Finance Review®
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Published by Global Banking & Finance Review®
Posted on January 31, 2025
4 min readLast updated: January 26, 2026
January saw record demand for euro zone bonds as higher yields attracted investors. Demand exceeded supply by 11 times, with France seeing significant interest.
By Yoruk Bahceli
LONDON (Reuters) - Euro zone governments saw record demand for bond sales in January, showing that investors are ready to cover unprecedented funding needs if paid the right price.
Strong demand for the sales followed a surge in bond yields, as prices fell earlier in the month, driven in part by worries about high funding needs ahead of U.S. President Donald Trump's inauguration.
Benchmark 10-year bond yields hit multi-month highs across the euro zone and Britain's briefly touched their highest since 2008.
Over 810 billion euros ($842.81 billion) of demand chased the 73 billion euros of euro zone government debt sold at syndicated debt sales in January, according to Reuters' calculations using data up to Jan. 30 from lead manager banks, debt management offices and LSEG's IFR.
That means demand exceeded supply by a record 11 times.
The "huge" demand showed concerns around how markets would absorb bond issuance were not as high as previously thought, Societe Generale strategist Jorge Garayo said.
Investors will have to buy a record amount of euro zone government bonds for a third straight year as the European Central Bank backs out of the market.
"If you look at the books, it's telling me, investors are happy to buy duration at some level," Garayo said, referring to the risk investors buying the bonds take on.
In syndications, governments hire banks to sell bonds directly to investors. The sales are tracked closely to get a clearer sense of demand than at auctions, where banks buy the bonds first.
Barclays' head of EMEA debt capital markets Lee Cumbes said the rise in bond yields, combined with swap spreads collapsing, had made the bond sales attractive for investors.
German 10-year bond yields have risen over 40 bps since the start of December. Elsewhere, U.S. Treasury yields are up around 90 bps from a September low and UK equivalents surged 100 bps last year.
Swap spreads measure the difference between the fixed rate investors pay on derivatives they use to hedge against interest rate risk and government bond yields.
Germany's 10-year yield exceeded swap rates for the first time ever late last year and the swap spread remains negative.
Investors such as banks often pay the swap rate to hedge exposure when buying these bonds, so earning a pickup over swaps makes bonds more attractive to buy.
RECORD DEMAND FOR FRANCE
France was one highlight, seeing record demand for its first syndicated issuance since 2024's snap election rocked its markets and sent the risk premium on its debt over Germany's surging.
"When I see France trading that wide, that's incredible value for us," said Barings fund manager Brian Mangwiro, who bought the bond.
Some analysts said they would not read too much into the numbers, however, citing a long-standing issue where hedge funds overstate their demand as they get a small allocation.
Belgium's debt agency noted that excluding orders from so-called "fast money" accounts such as hedge funds, demand for its January deal was 42.5 billion euros - much less than the total of 89 billion euros, but still a record.
Between 2021 and 2025, orders for its 10-year bond sales grew by over 150% from longer-term investors, more than double the 60% growth from accounts such as hedge funds, director Maric Post said.
"Seeing the record order books during quantitative easing is one thing, yet, to see it now, when QE has gone away, is very impressive," Barclays' Cumbes said.
However, he sounded caution.
"Conditions are very strong right now. In both 2023 and 2024, we found that the second half of the year was weaker than the first."
(Reporting by Yoruk Bahceli, additional reporting by Harry Robertson; Editing by Dhara Ranasinghe and Alison Williams)
The record demand was driven by a surge in bond yields, as investors were willing to cover unprecedented funding needs if compensated with the right price.
In January, there was over 810 billion euros of demand for 73 billion euros of euro zone government debt sold, meaning demand exceeded supply by a record 11 times.
The rise in bond yields, combined with collapsing swap spreads, has made bond sales more attractive to investors, indicating a willingness to buy duration at certain levels.
France saw record demand for its first syndicated issuance since the 2024 snap election, with investors finding incredible value in its bonds despite the risk premium over Germany's.
Analysts cautioned that while conditions are strong now, historical trends show that the second half of the year tends to be weaker than the first, suggesting potential volatility ahead.
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