LONDON Feb 6 Spanish bond yields edged down on
Thursday before a larger than usual debt auction which is tipped
to go well, with demand boosted by expectations of further
policy easing from the European Central Bank.
Spain aims to sell up to 5.5 billion euros in three- and
five-year bonds on Thursday, which is some 1.5 billion more than
it usually aims for at debt auctions. Market participants said
they saw little or no problem in raising such a sizeable amount.
Expectations that the ECB may ease policy further, possibly
even at its meeting later on Thursday, are likely to keep
top-rated bond yields anchored at ultra-low levels and encourage
investors to seek higher returns in lower-ranked assets.
The relatively short-dated debt Spain is offering is more
sensitive to central bank policy shifts than the 2024, 2027 and
2032 bonds France is aiming to also sell on Thursday in an up-to
8 billion euro auction.
Spanish 10-year yields were 1 basis point
lower at 3.72 percent, some nine basis points above the
eight-year lows of 3.63 percent hit at the start of the week,
but still about 50 basis points lower than at the end of 2013.
Spanish three- and five-year yields were also slightly above
similar historical lows.
"Sentiment remains very positive for the periphery ... so
the large amount and low yields are unlikely to be an obstacle,"
said Mathias van der Jeugt, a rate strategist at KBC in
A surprise fall in euro zone inflation to 0.7 percent in
January has increased pressure on the ECB to ease policy further
to defend its price growth target of close to but under 2
A Reuters poll showed the vast majority of money market
traders expected the ECB to keep rates on hold.
But some in the market expect more easing.
Barclays strategists expect the ECB to cut its refinancing
rate to 0.15 percent from 0.25 percent and the deposit rate to
minus 0.10 percent from zero - a move which would effectively
penalise banks for depositing cash at the ECB and not lending
them to other banks, businesses or consumers.
Some market participants also expect the ECB to stop
draining the amount equal to its crisis-era bond purchases every
week from money markets as it usually does. This would release
almost 180 billion euros in the interbank market, pushing
short-term rates lowed.
The forward overnight euro zone bank-to-bank borrowing rates
market, one of the best barometers for the perceived ECB
outlook, suggests expectations the ECB is likely to hold fire on
Thursday but may ease policy later this year.
The Eonia rate dated for the February meeting stood at 0.16
percent, in line with recent spot fixings, but the March Eonia
was below 0.13 percent and May to November rates between 0.08
and 0.10 percent.
Ten-year German Bund yields, the benchmark for
euro zone borrowing costs, were last 1 basis point higher at
1.55 percent, having hit their lowest since July 2013 at 1.507
percent in the previous session.
"I don't think the market is particularly long (on Bunds) so
there's room for some sizeable gains there if they cut. The
market is long of periphery but any signs of easing from the ECB
should support them as well," one trader said.
"Also there's room for disappointment if he (ECB President
Mario Draghi) is not as aggressive as the market thinks he
should be but ... (any sell-off) should be short-lived because I
think he is just putting off the inevitable."