Germany easily sold just over four billion euros of 10-year government bonds in its first auction of the year on Wednesday.

Along with the pick-up in demand — compared to the last auction in November — Berlin was able to offer a lower rate of interest to investors.

It dropped to 1.93 percent from 1.98 percent for the previous sale.

Analysts were not that impressed. “From a relative value perspective, the bond was expensive compared to the German curve,” said DZ Bank rate strategist Michael Leister.

“It’s not a good auction, but it’s not a surprise. For a good auction we need a pronounced flight to quality environment which we didn’t get in the past couple of days.”

Germany plans to issue 250 billion euros of debt in 2012, down from 275 billion euros in 2011, including 170 billion euros of conventional government bonds.

Also on Wednesday, Portugal’s borrowing costs fell to the lowest level since April as it sold one billion euros worth of three-month treasury bills.

But the bond markets remain volatile as Thomas Costerg, European Economist at Standard Chartered Bank noted: “Some countries are on the brink of accepting a bailout, I think especially of Spain and Italy, where confidence is weak and this weak confidence is aggravated by the fact that bailout mechanisms are insufficient to deal with the problems.”

The German and Portuguese sales are just the beginning, with France due to sell up to eight billion euros of bonds this week and auctions next week by Spain and Italy, the two countries most exposed to an escalation of the region’s debt crisis.

euronews