* Bunds fall more than a point, hit lowest since February
* Other euro zone debt prices also plunge
* Spanish yields see biggest daily jump since August 2012
* Ten-year yields rise at Spanish auction, demand weaker
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, June 20 Euro zone debt fell across the
board on Thursday and was expected to weaken further after the
U.S. Federal Reserve signaled it was ready to reduce its bond
purchases if its economic forecasts are met.
Fed Chairman Ben Bernanke said the U.S. economy was growing
fast enough to allow the central bank to trim its $85 billion
monthly stimulus, with the goal of ending it in mid-2014.
German Bunds saw their biggest daily fall since March, while
lower-rated debt yields jumped, with some analysts pointing to
risks that higher borrowing costs could bring still-unsolved
structural issues in the euro zone back into focus. Ten-year
Spanish yields saw their biggest daily rise since August 2012.
"It does seem like we're heading for a period of higher
yields after the comments," said Alan McQuaid, chief economist
at Merrion Stockbrokers in Dublin. He said the caution was
warranted as "the jury is still out on the world economy."
Bund futures were 131 ticks lower at 142.13, having
hit 141.95 earlier, their lowest since February.
With Bernanke saying future economic data is key, investors
expect increased volatility in the weeks ahead. Sanjay Joshi,
head of fixed income at London and Capital, said he was
protecting himself from that by switching into shorter-dated
assets, which tend to be less volatile than longer-dated ones as
the near-term outlook is easier to anticipate.
"Markets will be twitching every single time we get new
data... so we stay 3-4 years below benchmark," said Joshi, whose
firm manages about $4 billion in assets. He follows Barclays
indexes which have an average duration of about seven years.
Ten-year German yields rose 11 basis points to
1.66 percent, while two-year yields rose 8 bps to
0.25 percent. The euro zone money market curve also steepened.
Liquidity injections by the world's major central banks and
the promise of European Central Bank bond purchases if a country
asks for financial assistance have helped to drive the last
year's rally in bonds of the euro zone's struggling periphery.
Interpreting Bernanke's comments as the beginning of an end
to monetary stimulus in the United States, investors sold
lower-rated euro zone debt heavily on Thursday.
Italian 10-year yields rose 30 bps to 4.56
percent, while the Spanish equivalent jumped 34
bps to 4.86 percent. The cost to insure their debt against
default also rose.
"The risk is that if bond yields rise more, that in itself
is going to compound the issues in the euro zone, particularly
in the periphery. It threatens to throw up another mini-crisis
in the euro zone," ICAP strategist Philip Tyson said.
At a debt auction on Thursday, Spain sold its maximum
targeted 4 billion euros, but 10-year yields jumped and demand
as measured by bid/cover ratios was weaker than average.
"The Spanish auction was OK. The cover was down but they
sold the full allotment," Marc Ostwald, strategist, at Monument
"What we are in for is much wider trading ranges, much
greater intra-day volatility and an enormous doubt about where
central bank policy is going."