* Demand for new 10-year bond near 40 bln euros-IFR
* Large coupon and debt repayments support sale
* Easy ECB policy outlook supports German debt sale
By Emelia Sithole-Matarise and Marius Zaharia
LONDON, Jan 22 Spanish yields fell back near
eight-year lows on Wednesday as the sale of a new 10-year bond
drew bumper demand, supported by an improved growth outlook and
reinvestments of large coupon and debt repayments.
Spain issued 10 billion euros of a new 10-year bond via a
syndicate of banks in a sale which drew bids of almost 40
billion euros, a record among European governments.
"Demand was extremely good ... Investors are coming back to
European bond markets big time," said Laurie Haelikkie, a fixed
income strategist at SEB. "Definitely you can say that all the
euro zone break-up hassle ... is gone. Confidence is returning
fast to the euro zone."
Spanish 10-year yields were last flat at 3.74
percent, having retreated from an intra-day low of 3.68 percent
that was just above Monday's eight-year low of 3.65 percent.
Spain was rated triple-A the last time its bonds were
trading at those levels in 2006.
Traders said the large size of the issue was causing some
indigestion in the market - hence the bounce in yields in the
second part of the session - but this could be temporary as
Spain might be able to curb its issuance in coming weeks.
Madrid has set off its 2014 funding programme at a cracking
pace. With improved demand for higher-yielding euro zone bonds
spurred by a brighter growth outlook, more positive ratings
reviews and hefty bond repayments, it has been selling bonds
every week since the start of the year.
The syndicated sale comes after an auction of 5.9 billion
euros of 2017, 2026 and 2028 debt last week.
With Wednesday's sale, Spain said it has already met 16.6
percent of its aim to sell 133.3 billion euros in medium- and
long-term bonds this year, up from 128.4 billion last year.
Analysts said demand was also boosted by coupon and debt
repayments worth 12 billion euros due from Madrid in coming days
and increasing market expectations the European Central Bank
will loosen policy further to support growth.
Some in the market say that if the current pace of sales is
maintained next month when bond supply is expected to surpass
repayments, this could torpedo the rally.
"January has been quite a successful month based on cash
flows with huge amounts of redemptions and coupon payments
coming to the market which made for negative net supply. That
won't be the case for February and the risk now is for wider
spreads," said ING strategist Alessandro Giansanti.
Increasing bets the ECB will cut interest rates further to
counter a rise in short-term money market rates and support the
economy from potential deflation also spurred demand at a German
two-year bond auction.
Two-year yields were steady at 0.17 percent,
having re-tested six-week lows around 0.63 percent on Tuesday on
the ECB outlook and expectations that short-term money market
rates will retreat from recent peaks.