The yield of Germany's debt has risen, while the rate of return on Portuguese bonds has dropped in latest market auctions. Even though borrowing costs are still far apart, bond markets appear headed for normalization.
At an auction of two-year German treasury notes Wednesday, the bond yield came in at 0.06 percent, up slightly from a rate of return of zero percent recorded at the previous sale in August, Germany's central bank, Bundesbank, announced Wednesday.
On the back of solid demand, Germany sold 4.084 billion euros ($5.4 billion) worth of two-year government debt, the Bundesbank said. It could have placed bonds worth 8.446 billion euros in the markets as the number of bids was 2.1 times higher.
At the auction in August, this so-called cover ratio was still 1.5, the central bank said, indicating that demand for German bonds would remain "very high in the current tense market situation."
"Nevertheless, a pick-up in yield expectations in the two-year segment is now being observed," said Jörg Müller from the German Finance Agency, which manages the country's debt.
The German bond auction might signal a change in investor perceptions, marked until recently by capital flight from debt-laden countries Italy, Spain and Portugal to France and Germany, which are seen as safe havens in the eurozone debt crisis.
Bailed-out Portugal pays less
In a further sign of bond market normalization, Portugal raised 2 billion euros ($2.6 billion) at sharply reduced interest rates at an auction Wednesday.
Portugal's Treasury and Public Debt Management Agency said it sold the 18-month bills at a rate of 2.967 percent, considerably lower than the 4.537 percent interest it had to offer at the last auction of such bills in April.
The Treasury also raised 709 million euros in six-month bills at a rate of 1.7 percent, down from 2.292 percent in July.
However, Portugal originally planned to raise up to 1.75 billion euros in that placement, meaning that investors are still reluctant to lend longer-term money to the heavily-indebted country, which needed a 78-billion-euro bailout last year.
uhe/rc (AFP, Reuters, dpa)