European Bond Supply This Week, With A Twist

While there is much talk of large supply of US Treasuries this week (~$104 bln), European countries are bringing their own supply as well. However, France, Beligium and Ireland plan to sell bonds this week but rather than auction them, as they usually do, they will sell them through the banks. Bank will underwrite around 10 bln euros worth of bonds this week to help minimize market disruptions and ensure a smoother sale. Last week the UK sold GBP7 bln of bonds in the first sales managed by banks since Sept 2005.

Germany and the UK had failed auction this year and the return to syndication is seen as reducing the chances of more failed auctions. Issuers pay underwriters fees to sell the bonds to investors. Reports suggest that many debt managers are trying to avoid the less liquid conditions that often occur in the summer months.

France aims to raise sell 155 bln euros worth of notes and bonds this year. It has sold about 63% this thus far this year compared with about 60% near the midpoint of 2008, according to the France's debt agency.

The syndications began taking orders today for Belgium and Irish bonds today. In exchange for less risk of a failed auction the countries using syndication will pay the banks fees. According to a report, the UK may have paid its syndication a combined GBP14 mln (or roughly a fifth of a basis point) for arranging last week's sale.