EURO GOVT-Portugal 10-yr yield at 26-month low as bond sale eyed

Tue Jan 22, 2013 1:12pm EST

Related Topics

* Portugal expected to sell 5-yr bond on Wednesday
    * Sale will be first since Portugal's 2011 bailout
    * Spanish yields lower after successful new 10-yr bond sale
    * Sale is Spain's first new 10-yr bond since November 2011


    By Emelia Sithole-Matarise and Ana Nicolaci da Costa
    LONDON, Jan 22 (Reuters) - Portuguese 10-year yields fell to
their lowest in over two years on Tuesday with investors buoyed
by news the country was set to tap the bond market this week for
the first time since it was bailed out in 2011.
    This followed robust demand earlier at Spain's first sale of
new 10-year bonds in over a year as Madrid made the most of
renewed appetite for debt from the euro zone's weaker economies.
 
    Portugal was expected to keep up the successful run of
peripheral bond sales on Wednesday. Thomson Reuters service IFR
said Lisbon planned to reopen its benchmark October 2017 bond,
according to a bank managing the deal, and has mandated
Barclays, Banco Espirito Santo, Deutsche Bank and Morgan Stanley
to manage the sale. 
    Portuguese 10-year yields fell as much as 25
basis points on the day to 5.85 percent - the first time they
have traded below 6 percent since October 2010. The bonds
outperformed peripheral euro zone peers and German benchmarks
and took some of the shine off Spanish debt, cutting their yield
premium to its lowest since July 2010 around 70 basis points.
    Traders and strategists expected further falls in Portuguese
yields in coming sessions with the sale, via syndication, was
seen meeting solid demand due to the scarce bond issuance from
Portugal.    
    Investors were also emboldened to buy Portuguese debt after
a top European Union official said the bloc were examining ways
to lower the financial burden on Lisbon and fellow bailed out
Ireland to help them return to international bond markets later
this year.
    "People are looking at Portugal exiting its bailout
programme and we had confirmation of this syndicated issue from
Portugal, the first time in two years since we've seen them
issue a bond. This is good news," said David Keeble, global head
of fixed income strategist at Credit Agricole.
    "It (the Portuguese sale) will go like Spain's. There's
incredible appetite. It's a rarer issuer so I don't think there
will be a problem...That's a market that has further to run.
We're on the exit path now so it's difficult to stand in the way
of the rally," he added.
    The Portuguese government and the debt agency IGCP declined
to comment on the planned sale. But Finance Minister Vitor
Gaspar said in Brussels on Monday Lisbon was "ready to take
advantage of any opportunity that arises on the bond market to
carry out a primary issue and take a step towards regaining full
market access".
    
    SECURE DEMAND
    The spotlight on Portugal prompted some investors to book
profits in Spanish bonds after their sharp rally earlier
following Madrid's 10-year bond sale which raised 7 billion
euros, way above an initial target of 4 billion. A sale of
treasury bills was also above target and met strong demand. 
    Spanish 10-year yields ended 4 bps lower on
the day at 5.12 percent. Yields on Spanish debt have fallen
sharply since the European Central Bank pledged in September to
buy the bonds of struggling euro zone states that apply for aid.
 
    Ten-year Italian yields were also 3.7 bps
lower at 4.19 percent.
    Madrid's sale follows Rome's successful 6 billion euro sale
last week of its first 15-year bond in more than two years.
    The decision to sell the Spanish bond via a syndicate of
banks was seen securing demand, while Spain is also expected to
continue benefiting from an environment in which the promise of
central bank support has given investors space to seek returns. 
    "I think people will look at the carry that's there ... and
in the current mood there will be more than enough people out
there who will be willing to chase (yields), plus the
domestics," said Monument Securities strategist Marc Ostwald.
    At the euro zone's core, German Bund futures rose
22 ticks on the day to settle at 143.12, reversing earlier
losses with traders citing renewed buying interest at levels
close to last week's lows of 142.54 - seen as near-term
technical support. Data showing an unexpected fall in U.S.
existing home sales in December, sparked by some worries over
the pace of recovery in the housing market, kept low-risk debt
propped up.
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