* Lisbon plans to resume debt auctions in first half of 2014
* Spanish, Italian, other peripheral yields fall on ECB
* ECB stress tests: government debt will not be marked to
By Emelia Sithole-Matarise and Marius Zaharia
LONDON, Jan 15 Portuguese yields hit their
lowest in more than three years on Wednesday after Lisbon said
it expected to resume bond auctions in the first half of 2014 as
it prepares to exit its international bailout programme.
Peripheral euro zone bonds were broadly firmer after the
European Central Bank allayed investor concerns that local banks
might be forced to sell large amounts of domestic government
debt before upcoming stress tests.
The ECB said in a letter on Tuesday that European banks
would not be required in the stress tests to adjust the
sovereign debt portfolios they hold to maturity to reflect
current market values.
The treatment of sovereign debt exposure in this year's
balance sheet assessment is a key concern for banks, as they
loaded up on local bonds during the crisis while foreign
investors sold them.
Lisbon wants to take advantage of favourable market
sentiment and plans to issue 11 billion to 13 billion euros
($15.1 billion to $17.8 billion) of bonds this year.
Portuguese 10-year bonds outperformed their peers, with
yields falling 13 basis points to 5.198 percent,
their lowest since August 2010.
"The Portugal developments are quite encouraging," said
Riccardo Barbieri, a strategist at Mizuho. "There's a feeling
that maybe things can turn around. Even the government sounds a
bit more confident and the official lenders are quite positive
on developments in Portugal."
"Whereas a few months ago the consensus was Portugal will
need a second bailout, now the discussion is: 'They will exit
the bailout. Do they need a precautionary loan or not?' My own
view is they will probably apply for a precautionary line."
While Portugal is seen following euro zone peer Ireland and
exiting its bailout programme in mid-2014, many analysts doubt
it can manage without a back-up lending programme, unlike Dublin
which made a "clean" break from its bailout.
STING OUT OF STRESS TESTS
Yields on other peripheral bonds fell, with those on 10-year
Spanish debt heading back towards the five-year lows hit last
week after the ECB statement that banks' holdings of sovereign
debt would not be marked to market.
If bond holdings were marked to market, banks would be
forced to buy and sell bonds more frequently, increasing market
volatility. Reduced volatility will encourage long-term
investment by banks and other investors.
Shares in euro zone banks jumped, and banks with the
highest exposure to sovereign bonds were among the top
"We would imagine that few market participants saw a serious
risk the ECB will risk re-igniting crisis tensions by unduly
penalising banks for holding government debt," said Rabobank
senior rate strategist Richard McGuire.
"That said, this new detail ... will serve to mollify any
lingering concern on this front."
Spanish 10-year bond yields fell 6 basis
points to 3.77 percent, while equivalent Italian yields
dropped 2 bps to 3.87 percent. Yields on Greek and
Irish debt also fell.
Foreign investors held just over a third of tradeable
Spanish debt in November, down from more than half before the
crisis, according to the Spanish Treasury. The picture was
similar in Italy, October data from the country's central bank
showed on Tuesday.
Analysts say expectations of a pickup in global growth in
2014 are likely to increase the demand from overseas.
German 10-year Bund yields, the euro zone
benchmark, edged up to 1.83 percent after higher U.S. producer
price inflation and as Berlin kicked off its lightest
conventional bond issuance programme since 2007.