Irish yields rise before first regular post-bailout debt auction

Mon Mar 10, 2014 8:36am EDT

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* Dublin seeks to raise 1 bln euros on Thursday

* Ireland's example helps Portuguese yields lower

* Bunds flat after earlier rise on China data

By Joshua Franklin

LONDON, March 10 (Reuters) - Irish bond yields rose on Monday, bucking the trend in the euro zone periphery, after the country announced its first regular debt auction since completing an international bailout.

Ireland's debt agency said it would seek to raise 1 billion euros in an auction of 10-year bonds on Thursday, three months after it became the first euro zone country to exit an EU/IMF bailout. Dublin had said in February it would resume regular bond auctions this month.

On the day, Irish bond yields rose by 3 basis points to 3.11 percent as investors made room on their books for the new bonds.

However, DZ Bank strategist Christian Lenk said demand for Irish debt remained strong, particularly after ratings agency Moody's in January upgraded the country's debt to investment grade from junk.

"The sag today is driven by the news of the announcement but this should not lead to a sustained underperformance," Lenk said. "Irish bonds remain an attractive investment for a lot of investors given its new renewed investment-grade status."

The prospect of a successful return to the regular market for Ireland helped yields on Portuguese bonds to near four-year lows on Monday. Lisbon hopes to follow Dublin's example and exit its bailout later this year. Portuguese bond yields fell 7.5 bps to 4.53 percent, their lowest since April 2010.

Investor appetite for higher returns following the European Central Bank's decision to leave interest rates on hold helped Spanish and Italian yields lower, with the former down 4.6 bps at fresh eight-year lows of 3.32 percent.

"With the ECB interest rate set to stay low, investors are still on the hunt for yield and Italy, Spain are safe pick-up haves," said Rainer Guntermann, a strategist at Commerzbank in Frankfurt.

Data showing Italian industrial production rebounded more than expected in January also helped investor sentiment towards Italy, whose 10-year yields were 2 bps lower at 3.41 percent.

Yields on low-risk German Bunds were flat on the day at 1.65 percent, having earlier pushed higher on the back of Chinese growth concerns following weak economic data in the world's second-largest economy. Other top-rated euro zone bond yields were also steady.

There was little progress over the weekend between the West and Russia to resolve tensions over Ukraine and DZ Bank's Lenk said investors were awaiting fresh developments in the dispute.

"Ukraine is still a potential market-mover," Lenk said. "But as long as the status quo remains where it is I think investors will keep a very, let's say, quiet hand towards that potential risk factor."

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