* German bond sale solid, Austria launches new benchmarks
* Austrian, French and other top-rated bonds pressured
* Rate cut speculation supports German Schatz auction
By William James
LONDON, April 10 Yields on highly-rated euro
zone bonds lifted further from recent lows on Wednesday, with
prices seen slipping in the near term, as investor demand
focused on a wave of newly-issued debt.
A broad sell-off across the euro zone's more secure
countries extended into a second day as the surge in demand that
followed Japan's announcement of huge monetary stimulus paused,
and the flow of new debt into the market gathered pace.
French, Dutch, Belgian and Austrian bond yields all rose
away from the record lows hit in the wake of Japan's $1.4
trillion bond-buying stimulus plan.
"It feels like this euphoria about Japanese buying that was
sweeping the markets has cooled down a bit, in combination with
quite a decent chunk of supply hitting the market," said Michael
Leister, senior strategist at Commerzbank in London.
Germany sold 4.22 billion euros of two-year debt and Austria
launched new 10- and 20-year bonds via syndication, adding to 14
billion euros issued on Tuesday by the Netherlands, Finland and
the euro zone's EFSF rescue fund.
The supply helped to mop up demand created by expectations
that Asian investors will switch away from low-yielding Japanese
bonds in search of higher returns.
Ten-year Japanese government bonds last
yielded around 0.62 percent compared with 1.3 percent on
benchmark German bonds, the lowest yielding
equivalent debt in the euro zone.
Analysts said further rallies would need to be backed up by
evidence of Japanese investors swapping into euro zone debt.
"There's been lots of anticipation priced in but we should
not forget that these asset managers and investors don't just
pull a switch overnight. It seems like there's more to come but
we have to wait until we get some data," Leister said.
French 10-year yields were 7 basis points
higher on the day at 1.86 percent, some way above the record low
of 1.71 percent touched on Monday. Dutch, Belgian and Austrian
yields all rose by a similar amount.
The German Bund future, sought as a safe haven in
times of market stress, was down 41 ticks on the day at 145.39,
having backed away this week from 10-month highs reached on
Despite the dip in German prices, a sale of two-year Schatz
bonds found solid demand, with some investors anticipating a
possible euro zone interest rate cut in the coming months to
tackle the region's economic decay.
"There are mounting expectations that the ECB will cut rates
or do something that can affect short-term yields," ING rate
strategist Alessandro Giansanti said.
"The market believes yields will stay near zero for a long
period of time or even turn negative so there is buying interest
in the Schatz at the moment."
European Central Bank executive board member Joerg Asmussen
said on Tuesday there were more downside risks to a euro zone
recovery in the second half of 2013 than there were one or two
months ago - comments that some saw as reinforcing expectations
of a rate cut.
Analysts pointed to the large amount of money being returned
to investors this week in interest payments and maturing German
bonds as a supportive factor for the sale.