Auctions Never Fail!: PIMCO’s latest European Perspectives

Auctions Never Fail!: PIMCO’s latest European Perspectives by Lorenzo Pagani

·         Due to the strict relationship between sovereign issuers and dealers, primary auctions do not typically fail. However, the high level of volatility in sovereign bond markets and the absence of a credible Plan B should encourage investors to remain cautious on European sovereign risk.

·         The increase in volatility can reach a breaking point when dealers are no longer willing to absorb risk and the issuer loses market access, irrespective of whether an auction fails or not.

·         Individual countries are working to regain credibility and address their debt-sustainability but what is needed is an explicit collective commitment towards fiscal union.

·         Catalysts for uncertainty may only be a few weeks away with the elections in Greece, France and a referendum in Ireland looming.

·         Foreign investors who preferred to remain on the sidelines during the rally may reappear as sellers given current price levels.