EURO DEBT SUPPLY-Greece, growth jitters to support core auctions

Fri Nov 9, 2012 7:45am EST

Related Topics

* Triple-A issuers to dominate

* Germany to launch new 2-year issue, zero coupon seen

* Italy in market with three-year sale

By Kirsten Donovan

LONDON, Nov 9 (Reuters) - The euro zone's lowest risk issuers are set to find good demand at bond auctions next week, with renewed jitters over Greece and global economic growth bringing investors flocking back to the safe-haven paper.

Next week's issuance - with sales from triple-A rated Germany, France, The Netherlands, and also Italy - will total around 23 billion euros, hitting the market in a week all but devoid of coupon and redemption cash inflow payments.

Of most interest will be Germany's launch of a new two-year bond, maturing in December 2014, which analysts expect to be the third such to offer investors no return on their cash.

"With front-end yields back in negative territory, it looks like it will be another zero percent coupon," said Commerzbank rate strategist Michael Leister.

Two-year German bond yields dropped below zero again this week with no clarity on when Greece would receive more aid, signs the economic rot in the euro zone was increasingly spreading to the region's powerhouse and the prospect of growth-crushing spending cuts in the United States.

"We are in an environment that is supportive for core bonds," said ING rate strategist Alessandro Giansanti

"We expect lower (demand for the new bond) compared with the previous auction but we do expect it to be covered," he added, referring to attracting more bids than the 5 billion euros on offer.

ITALY

Italy will sell three-year bonds on Wednesday, with some analysts expecting the launch of a new benchmark and possibly also a foray into the longer-end of the curve after Spain successfully sold 20-year debt this week.

Italy has not sold bonds with a maturity of more than 15 years since the first half of 2011. It will announce details of the auction later on Friday.

"With the risk-off tone and yields spiking higher, it will be interesting to see how this auction does," Commerzbank's Leister said.

"Nonetheless...we believe it should be absorbed fairly well given the over-riding theme remains unchanged and the periphery remains supported. If we see some further (cheapening), that should attract buying interest."

Recent central bank data has shown signs that international investors - who fled the market earlier this year - have tentatively resumed buying both Italian and Spanish bonds.

But peripheral yields have crept higher again this week as concerns about the sustainability of Greece's debt load bubbled back to the surface and with little prospect of Spain asking for a bailout this year - something that would allow the European Central Bank to buy its bonds - after it reached its 2012 issuance target.

A senior EU official said on Friday that euro zone finance ministers were unlikely to take a final decision to release the next tranche of emergency loans to Athens - cash necessary for Greece to avoid bankruptcy - at a meeting on Monday .

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