Spanish yields near record low amid 50-year bond sale hints
* Spain might issue 50-year bond - financial daily Expansion
* Waning Portuguese concerns, clear diary support periphery
* Lingering Ukraine concerns pin Bund yields near record low (Adds comments, updates prices)
By Emelia Sithole-Matarise and John Geddie
LONDON, July 21 (Reuters) - Spanish yields headed towards record lows on Monday, with strategists citing reports the country could sell a 50-year bond that could help it extend the maturity of its debt.
Spanish financial daily Expansion quoted Inigo Fernandez de Mesa, the head of treasury, as saying that he could not rule out issuing a 50-year bond, suggesting the market was ripe for what would be the country's longest-ever bond.
Spain and Italy have met more than 70 percent of their funding needs for this year, taking advantage of record low borrowing costs to frontload bond sales.
"It makes sense for issuers to lengthen their maturity profile with low interest rates," Citi's global head of rates strategy, Alessandro Tentori, said.
Spain is eager to reverse, or at least steady, a fall in the average life of its debt which stood at seven years before the economic crisis to hit around 6.3 years at the end of May, Bank of Spain data showed. The lower the average life of debts, the more burdensome it is for countries to refinance near-term debts.
Spanish 10-year yields fell as much as 8 basis points to 2.55 percent, within a whisker of a record low of 2.548 percent hit last month, before paring those gains during the afternoon.
Italian 10-year yields fell 5 bps to a day's low of 2.75 percent while Portuguese equivalents fell 4 bps to a day's low of 3.66 percent, before paring gains.
Analysts said waning concerns about the exposure of Banco Espirito Santo, Portugal's biggest listed bank, to problems related to companies owned by its founding family were supporting sentiment in peripheral euro zone bonds. Scant scheduled debt sales this week were also a factor.
CAUTION OVER UKRAINE
Hefty redemptions and coupon payments later in the month and about 1 trillion euros in cheap loans to banks from the European Central Bank due from September tempered a sell-off in peripheral bonds after the downing of a Malaysian jet in Ukraine last Thursday jolted financial markets.
The bond market was calmer on Monday with some investors hoping the coming days might bring a diplomatic solution to the Ukraine crisis after the plane crash, blamed by Western countries on pro-Russian rebels.
Fighting still raged in the eastern Ukrainian city of Donetsk on Monday, however, as investigators began to inspect the bodies near the crash site.
"Investors don't seem as worried as they were last Friday," DZ Bank strategist, Christian Lenk, said. "There are simply some hopes now implicitly that maybe we have seen a culmination of that conflict and may see some easing in the near future."
German 10-year yields, the benchmark for euro zone borrowing costs, dipped 2 bps to a day's low of 1.14 percent, within sight of an all-time low of 1.126 percent hit at the height of the debt crisis in mid-2012.
Cyril Regnat, fixed income strategist at Natixis, said that German 10-year yields could touch 1 percent in the coming weeks amid light summer trading, geopolitical tensions and a dim euro zone economic outlook. (Editing by Tom Heneghan)