EURO GOVT-Doubts over rescue fund size hit periphery, Belgium
* Rescue fund doubts weigh on periphery, Belgian bond sale
* Spanish and Greek T-bill auctions well-received
* Irish, Portuguese bond prices fall; no ECB buying seen
By Kirsten Donovan
LONDON, Jan 18 (Reuters) - The prices of higher-yielding euro zone bonds fell on Tuesday, after the Dutch finance minister said the Eurogroup had rejected enlarging a rescue fund for the region's more indebted states.
Dutch Finance Minister Jan Kees de Jager told reporters euro zone finance ministers had discussed but rejected the idea of increasing the European Financial Stability Facility to 750 billion euros. [ID:nBRU011258]
Belgium was caught by the worsening sentiment, having already launched a three billion euro 10-year syndicated bond, which managers of the deal said would price at the wide end of initial guidance [ID:nLDE70H0O2].
"Three billion is significantly lower than the norm of a new 10-year OLO, and one could have expected that amount to have been raised by reopening three existing lines," said Credit Agricole rate strategist Peter Chatwell.
"However, one does have to take into account the very unfortunate timing of the syndication with regards the disappointing EFSF news, and the wider bond market sell off." Greek bond prices led other higher-yielding bonds down, with the Greek/German 10-year yield spread widening by as much as 27 basis points to 845 basis points.
"It's not been a great day for the periphery but it's not like it's falling apart again and it has had a relatively good run for a week or so," said Charles Diebel, rate strategist at Lloyds Bank.
"The issuers and the European Central Bank put together will try and ensure that there's not a bad auction until the EU summit in March: as long as they get funds in, that's all that matters."
Some traders and strategists said the market might have got ahead of itself in expecting a resolution to the euro debt crisis given no sign of an imminent decision from a finance ministers' meeting on Tuesday.
Any crisis-fighting measures seem likely to be agreed in a package deal at a European Union summit on Mar. 24-25, a source from the EU's Hungarian presidency said. [ID:nL3E7CI0C4]
Spanish bonds outperformed Bunds after Madrid followed up a successful bond syndication with a well-received T-bill auction at lower average yields than a previous auction. [ID:nLDE70H0RU]
A Greek T-bill auction where foreigners bought 80 percent of the paper on offer also confirmed that borrowing conditions for peripheral states had improved, boosting sentiment and pushing Bund futures to their lowest since mid-December.[ID:nATH005879] "The Spanish syndication was positive for peripheral sentiment but the dawdling on the part of euro policymakers has led to the market differentiating between different members of the periphery," said Richard McGuire, a strategist at Rabobank.
"There are those that can continue to tap the market and there are those that need assistance and that assistance may not be forthcoming soon," he added.
A confidence motion called by Prime Minister Brian Cowen to shore up his leadership of the ruling Fianna Fail party also weighed on Irish bonds.
March Bund futures FGBLH1 settled 70 ticks lower at 124.06. Ten-year Bund yields DE10YT=TWEB were 8 bps higher at 3.12 percent with 2-year yields DE2YT=TWEB up 7 bps at 1.123 percent. (Reporting by Kirsten Donovan; Editing by Ruth Pitchford)
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