EURO GOVT-Spanish yields edge up before auction

Wed Dec 5, 2012 4:29am EST

Related Topics

* Spanish yields edge higher ahead of debt sale
    * Bunds yields also rise but seen capped by U.S. fiscal
worries
    * U.S. data in focus, to guide non-farm payroll expectations

    By William James
    LONDON, Dec 5 (Reuters) - Spanish bond yields edged higher
ahead of an auction on Wednesday, while low-risk German yields
also rose but were seen capped in coming days by market concerns
about U.S. budget risks.
    Spain was expected to find solid demand from investors at
its debt auction, even at the current relatively low yield
levels after expectations Greece's debt-reduction plans will
succeed sparked a strong rally in peripheral bonds this week.
    "You could argue there's been no concession for Spain, but
given there's obviously plenty of demand out there this week it
should go through OK," a trader said.
    Ten-year Spanish bond yields were 3 basis
points higher at 5.29 percent as the looming new supply stalled
a rally that pushed yields to their lowest since March on
Monday.
    The market's 'risk-on' mood this week was fuelled by the
announcement of better-than-expected terms on a Greek bond
buyback, increasing the chances of a successful debt reduction
and the payment of badly-needed aid.  
    German Bund futures, which rise in times of market
stress, were 10 ticks lower at 142.64, giving back modest gains
made on Tuesday, but low-risk debt was still expected to find
support over the coming weeks from uncertainty over U.S. budget
talks.
    Policymakers across party lines in the United States are
trying to hammer out a deal to avoid a series of tax rises and
spending cuts which would hamper a nascent economic recovery.
    "If they don't resolve this fiscal cliff we've got this
dread of their economy going back into recession which will have
a real detrimental effect for the world," said Alan McQuaid,
chief economist at Merrion Stockbrokers.
    "If it's resolved I think safe havens will sell off a bit
and then we come back next year... but the market will still be
nervous with elections in Italy and Germany coming up (in
2013)." 
    Germany sells two-year debt later in the session which was
expected to easily find buyers, helped by a rise in yields this
week that has pushed the returns offered on the Schatz bonds
back above zero.
    After the day's debt sales, focus will shift to U.S. data,
with ADP employment figures guiding expectations for Friday's
headline non-farm payrolls report which is used as a key
indicator of the U.S. economy's health.
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