* Bunds fall more than a point, hit lowest since February
* Other euro zone debt prices also plunge
* Spain, France to hold "difficult" debt sales
By Marius Zaharia
LONDON, June 20 Euro zone debt fell across the
board on Thursday and was expected to weaken further after the
Federal Reserve signalled it was ready to reduce its bond
purchases if its economic forecasts were 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 sank to their lowest since February, 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.
"The expectation was that (Bernanke) would have been a lot
more balanced and the market sees this as the beginning of a
long process of tightening," ICAP strategist Philip Tyson said.
Peripheral debt has rallied sharply over the past year on
the back of liquidity from the world's major central banks and
the promise of European Central Bank bond purchases if a country
asked for financial assistance.
With the first factor seen diminishing, a Spanish debt
auction later in the day will be closely watched for any sign of
Bund futures were last down 131 ticks at 142.13,
having hit 141.95 earlier, their lowest since February. Ten-year
German yields rose 9 basis points to 1.65 percent.
German debt often moves in the same direction as U.S.
Treasuries due to the two assets' safe-haven status. Ten-year
U.S. T-note yields hit 15-month highs of about 2.38
percent in the wake of the Fed announcements.
Bund losses are expected to be capped by the fact that the
euro zone economy lags that of the United States; analysts said
euro zone PMIs later on Thursday could provide temporary
"The PMIs might provide a bit of a reality check and core
bonds may find a bit of support at these yield levels, but the
risk is ... (to see) higher yields in the immediate future,"
ICAP's Tyson said.
Italian 10-year yields rose 14 bps to 4.40
percent, while Spanish equivalents jumped 16 bps
to 4.68 percent.
Portugal, which is nearing the end of its bailout programme,
underperformed, with its 10-year yield rising 25
bps to 6.34 percent.
"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," Tyson said.
Spain plans to sell 3-4 billion euros of 2018, 2021 and 2023
bonds later in the day, while France plans to issue 7.5-9.0
billion euros of fixed rate and inflation-linked paper.
The market will focus on Spain.
"It's going to be difficult because risk assets seem to be
hurt just as much as core assets. It's going to be a hard day,
very volatile," one trader said.