FRANKFURT (MNI) – Germany is cutting its total sovereign issuance
in the fourth quarter by E26 billion to E60 billion, Germany’s Federal
Finance Agency announced Thursday.

The cut had been expected given that Germany’s economic and
budgetary position is better than foreseen late last year, when the
issuance total for the year was planned.

The Finance Ministry, which oversees the Finance Agency, said
earlier this week that net new borrowing for this year would be
“markedly below E60 billion.” This compares to an estimate of just over
E80 billion in the 2010 budget passed in March.

Press reports issued earlier today suggested that federal new
borrowing this year would likely even undercut E54 billion. While the
Finance Ministry would not comment on these reports, federal and total
tax revenue are trending above expectations this year, data from the
Finance Ministry’s most recent report show.

Germany slashed E6 billion in capital market operations — making
marginal cuts to most planned auctions, but not cancelling any auctions
outright.

The agency confirmed what it had already announced ahead of Q3,
that it would not hold the tap auction on the 4.75% July 2040 30-year
bond for E3 billion previously scheduled for October.

Most of the cuts were made on the money-market side, with E20
billion cut from treasury bill (“bubill”) sales in Q4. These were the
first cuts that Germany has made to its bubill issuance this year and
follow the pattern of last year where significant cuts were made to
bubill sales in the final quarter.

The government is cutting the volume on new 12-month bubills
scheduled for auction in October and November by E1 billion each and
slashing the volume of a new bubill issued in December by E2 billion.

It is also making E16 billion in savings by canceling the top up
auction of bubills with remaining maturities of both three months and
nine months, which were scheduled in the original calendar. In total E23
billion will be issued in bubills in Q4 versus E43 billion originally
planned.

Of the two new capital market issuances scheduled for Q4, the
December-2012 Schatz will be launched on November 10 for E6 billion,
instead of E7 billion planned in December 2009.

The other, a January-2021 Bund will be launched on November 24, for
E6 billion, as planned.

Germany kicks off Q4 on October 6 with a E5 billion tap of its
0.75% coupon September-2012 Schatz. Originally this was to be for E6
billion.

One week later, October 13, the 10-year 2.25% September-2020 Bund
will be tapped for E5 billion, instead of the E6 billion as planned.

The capital market calendar is then empty until November 3, when
Germany taps its 1.75% October-2015 Bobl by E5 billion, instead of E7
billion previously scheduled. This will be tapped again on December 1
for E5 billion, instead of E6 billion previously announced.

The agency concludes its capital market auctions for the year on
December 8 with a tap of the December-2012 Schatz for E5 billion, as
planned.

The last auction for the year will be on December 13, a E2 billion
sale of new 12-month bubills. The agency said it will announce the
outlook for 2011 and a detailed schedule for the first quarter of 2011
in the second half of December.

The agency reduced its target range for inflation-linked (“linker”)
sales in Q4, now saying that it only intends to sell E2 to E3 billion,
instead of between E3 and E4 billion.

Germany repeated its standard language that it “reserves the right”
to issue in foreign currency. Thus far, it has not sold any foreign
currency bonds, after selling a U.S. dollar bond last year, its first in
four years. It has issued E3 billion in linkers per quarter for each of
the first three quarters this year.

This is the second consecutive quarter of slashed sovereign
issuance for Germany. Ahead of Q3, the government announced a total of
E5 billion in cuts (E2 billion in Q3 and E3 billion in Q4), reducing
total expected issuance to E338 billion on the year.

Assuming the government makes no surprise cuts during Q4, total
issuance this year will now total E312 billion — below last year’s
total issuance of E329 billion.

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

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