* German bond sale solid, Austria launches new benchmarks
* Austrian, French and other top-rated bonds pressured
* Rate cut speculation supports German Schatz auction
* Split Fed stance on QE kicks German Bunds lower
By Emelia Sithole-Matarise and William James
LONDON, April 10 A broad sell-off among
highly-rated euro zone bonds extended into a second day on
Wednesday, lifting their yields from recent lows as investor
demand focused on a wave of newly-issued debt.
French, Dutch, Belgian and Austrian bond prices were seen
slipping further in the near term, with investors looking for
evidence of a switch out of low-yielding Japanese bonds into the
currency bloc after Japan's huge $1.4 trillion stimulus plans
last week spurred demand for overseas debt.
Yields lifted further from the record lows hit in the wake
of Japan's plan and as the market absorbed more than 20 billion
euros in newly-issued bonds this week.
"We're seeing a pullback on the combination of issuance and
the market starting to question when and how much of this
JGB-related money is going to find its way into the euro zone,"
said Lyn Graham-Taylor, a strategist at Rabobank.
"Until we get hard evidence of Japanese money flowing in it
might become a less significant driver for the market for a few
Germany sold 4.22 billion euros of two-year debt and Austria
issued 4.5 billion euros of 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.
French 10-year yields were 7 basis points
higher on the day at 1.86 percent, off Monday's record low of
1.71 percent. Belgian and Austrian yields rose 8 bps to 2.10
and 1.66 percent respectively.
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 depend on how much cash
flows from Japanese investors swapping into euro zone debt.
"If this fresh buying comes in it's not going to be a huge
wave, it will be coming in gradually so I don't think we're
going to test those lows again," said David Keeble, global head
of fixed income strategy at Credit Agricole.
The German Bund future settled 45 ticks lower at
145.35. It slightly extended falls and a retreat from 10-month
highs reached on Friday, after the U.S. Federal Reserve's
minutes to its March policy meeting raised concerns the central
bank might taper or end its bond purchases by the end of the
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."
Analysts also said the large amount of money being returned
to investors this week in interest payments and maturing German
bonds supported the sale.