Germany sold 30-year bonds at a record low yield on Wednesday, helped by safe-haven buying as growing uncertainty over Greek debt talks reminds investors the euro zone crisis could yet worsen.
It received just over 5 billion euros of bids for the 3 billion euros of paper offered - more than the 2 billion euros Germany usually places at 30-year debt sales - with 2.46 billion euros allocated at an average yield of 2.62 percent, its lowest ever cost of long-term borrowing.
Despite the larger size, the sale was more successful than the last reopening of the bond in October, which drew less in bids than the amount of paper on offer. A recent cheapening in German debt on the secondary market also helped demand.
There still seems to be a lot of demand for safety out there. Investors are cash-rich in general and are looking for ways to park their money, preferably in safest debt, said DZ Bank rate strategist Michael Leister.
We've seen a decent sell-off in Bunds over the past sessions, but overall the market doesn't seem to be full-heartedly supportive of this risk-on sentiment.
Long-dated debt from the euro zone's few remaining top-rated states has found good demand this year, with the Netherlands also seeing strong bids at its 30-year auction on Tuesday.
This week's 30-year core auctions reiterate that demand for very long core paper is still good, said Credit Agricole rate strategist Peter Chatwell.
The market has clearly not yet priced-out a structurally low-rate environment.
A cheapening of German 30-year paper versus 10-year Bunds has seen the yield curve steepen around 20 basis points in the last month and was supportive for the sale.
There could be some short-closing in the 30-year which has occurred (at the auction), Chatwell added.
Doubts that Greece can reach a deal with its private sector creditors to avoid a default when 14.5 billion euros of bond redemptions fall due in March have led investors to seek shelter from a euro zone crisis that is still far from resolved.
Germany sold 12-month T-bills on Monday at a yield of just 0.07 percent and earlier this month sold six-month paper with a negative yield for the first time ever. Sales were further helped by the nearly half-a-trillion euros of European Central Bank three-year loans flooding the market with liquidity.
Demand at Germany's longer-term bond sales this year has generally been solid, especially when compared with a run of auctions at the end of last year which failed to draw enough bids to cover the amount on offer.
Reinvestment flows are obviously playing an important role in supportive ... auctions at the start of the year, said Annalisa Piazza, market economist at Newedge Strategy.
This was the last reopening of the 3.25 percent July 2042 bond, bringing the outstanding amount to 15 billion euros.
The bid/cover ratio of 2.1 was above the 2011 average of 1.275 percent, with the 0 cent tail - the difference between the lowest bid and the average bid - reflecting the good quality of bids.
German 30-year bond yields were last 5 basis points lower at 2.597 percent, compared with around 2.64 percent just ahead of the sale, with Bund futures 54 ticks higher at 137.84.
(Editing by Catherine Evans)