European Nations Hungrily Eye Government Debt Issues

February 23, 2005 ( - A number of countries are moving to slash long term debt by tapping the bond market in the face of older citizens and pension reforms.

According to an AFX news report, the decisions by governments of some of the world’s largest economies are trying to take advantage of low interest rates and a strong demand from investors to buy the government debt issues.

For example, AFX said France on Wednesday rolled out a 50-year bond worth 6 billion euros, and those bonds drew three times as many bids as the amount of securities offered by the government. Bond traders said Greece likewise intended to price a 30-year government bond while UK officials have said in the past that they’re looking at whether 40- and 50-year government bonds make sense for their needs, according to the report.

Analysts cite a few key factors behind the stronger debt demand. For one, aging societies have upped the political pressure to reform, or at least review, pension and retirement benefits in Europe and the United States, the news report said. Not only that, but European regulators’ recent move to institute more pension fund transparency is prompting fund managers to turn more to lower-risk fixed income positions.

“There’s great reception out there [for bonds] from pension funds. They had been heavy into stocks and are starting to switch back into bonds,” Jay Bryson, global economist with Wachovia Securities, told AFX.

Long-term interest rates have been held down even as key central banks, such as the US Federal Reserve, keep bumping up short-term interest rates. Governments are jumping at the chance to lock in those low rates by selling bonds now rather than later, but a flood of paper could put pressure on prices, lifting yields, the news report said. From an investment standpoint, relatively low inflation among the largest industrialized economies will help the bonds retain their value.