Germany sells 30-year bond as borrowing costs surge

LONDON, March 5 (Reuters) - Germany was set to raise 5 billion euros from a new 30-year bond on Wednesday, according to LSEG's IFR, just as its borrowing costs surged after parties seeking to form its next government agreed on a historic debt overhaul to revamp defence spending and the economy.

The bond saw investor demand of over 36 billion euros, IFR said.

"All in all, a solid transaction when you look at the market environment," said Jens Peter Soerensen, chief analyst at Danske Bank, noting Germany paid a limited premium relative to its outstanding bonds.

Germany's bond yields surged as investors digested the additional borrowing expected to back the debt overhaul, with 30-year yields DE30YT=RR jumping as much as 25 basis points at one point.

The new bond will be sized at 6 billion euros, but Germany will retain 1 billion euros of the issuance on its books, IFR said.

It will be priced at a yield spread of 3.25 basis points over Germany's outstanding bond due August 15 2054, down from around 4 basis points when the sale started, IFR added.

Germany is selling the bond at a syndication, where a government hires banks to sell the debt directly to end investors.

This gives a clearer indication of investor demand for the issuance compared to an auction, where banks acting as dealers buy the bond, then sell it onto the market.