* BOJ stance keeps high-rated bond yields near record lows
* Rally pauses to allow Dutch, Finnish debt to be absorbed
* French bonds seen especially at risk for a reversal
By Marius Zaharia
LONDON, April 9 The bond rally fuelled by the
Bank of Japan's plans for massive money printing paused on
Tuesday for investors to absorb fresh debt sales, pushing yields
on highly-rated euro zone bonds back up from record lows.
Japan's central bank unveiled an unprecedented $1.4 trillion
stimulus plan last week, prompting speculation that some of the
cash will spill over into other regions. This pushed yields on
French, Dutch, Austrian or Belgian bonds sharply lower.
Analysts say yields could fall further in the near term,
although doubts about how long a weakening economy such as
France would be able to borrow at such low levels were seen
limiting the move.
Dutch 10-year bond yields were 7 basis points
higher on the day at 1.51 percent, pulling back from last week's
record lows of 1.384 percent, after a sale of 20-year government
Finland was due to sell around 4 billion euros of a new
10-year benchmark via a syndicate. The books were closed earlier
for pricing later in the day, with demand being twice the
amount on offer, according to IFR, a Thomson Reuters service.
Finnish 10-year yields rose 6 bps to 1.49
"We had all this supply today after a big rally so there's a
bit of profit taking," one trader said.
Once the debt auctions are out of the way, however, yields
could resume edging lower, analysts said.
"There is a little bit more room to go, but the air is
getting thinner," said DZ Bank rate strategist Christian Lenk,
adding that the bonds most at risk of reversal were the French.
"The market is completely ignoring the bad news from France.
Everybody is buying France because it offers a 50 bps pick-up
over Germany," he said.
Recent economic indicators have painted a bleak outlook for
the French economy. The government is expected to miss its 2013
budget deficit target and analysts warn the country has made
little progress in reforming its inflexible labour markets.
French 10-year yields were 7 bps higher on the
day at 1.82 percent - offering a 54 bps premium over equivalent
German Bunds - having hit a record low of 1.711
percent on Monday.
STAYING ON SIDELINES
Some investors, meanwhile, were reluctant to buy into the
idea that euro zone bonds will eventually benefit from Japanese
"We haven't got involved in semi-core markets over the past
couple of weeks and it's unlikely that we will," said Sanjay
Joshi, head of fixed income at London and Capital, which manages
$1.5 billion in fixed income assets.
"Certainly ... Japan's (stimulus) option does change the
plan for investors elsewhere as well. But the way I tend to look
at it is that the first (to gain) are (U.S.) Treasuries,
followed potentially by (UK) gilts ... and Canadian and Aussie
bonds before the euro zone."
Joshi said he has recently bought U.S. Treasuries and
Canadian bonds, on the view that Japanese investors would regard
most euro zone bonds as too volatile too prefer them over other
In Germany, Bund futures were 45 ticks lower on the
day at 145.63, with some traders saying a strong start to the
U.S. company earnings season was weighing on low-risk debt.