* Spain aims to sell 5.5 bln euros of bonds
* ECB expected to keep interest rates steady
By John Geddie
LONDON, April 3 Spain was set to tap into strong
demand for peripheral euro zone bonds at a scheduled debt
auction on Thursday, with yields holding just above 8-1/2-year
Spain is expected to raise with ease the 5.5 billion euros
it is targeting in taps of 2019, 2024 and 2026 bonds, even
though Spanish consumer prices are dropping and the European
Central Bank appears unlikely to address deflationary risks by
cutting interest rates at its meeting later in the day.
"The flow in the periphery is so one way at the moment.
There's incessant demand for peripheral paper and we think this
rally has much further to go," one trader in euro zone
government bonds said.
Spanish 10-year bonds were flat on the day at
3.28 percent, like other peripheral debt hovering just above
The ECB looks set to keep rates steady and offer no new aid
to the euro zone's fragile recovery, despite a fall in annual
inflation in March to its lowest rate in more than four years.
Consumer prices in Spain, the bloc's fourth largest economy,
fell 0.2 percent year-on-year.
Market participants will tune in to ECB President Mario
Draghi's post-meeting news conference for clues on future policy
"Unless there are significant comments about quantitative
easing or more concrete guidance for further rate cuts, yields
should stabilise around these levels," said Rainer Guntermann, a
strategist at Commerzbank.
Guntermann said markets were unlikely to make a sustained
directional move until after U.S. non-farm payrolls data due on
France is also scheduled to auction debt on Thursday, via
taps of its 10-year and 20-year benchmarks and a seven-year
off-the-run bond, aiming to raise a combined 6.5-7.5 billion
French 10-year yields were 1 basis point higher
on the day at 2.15 percent.
(Editing by John Stonestreet)