* Perkier appetite for Bunds to help German 10-year sale
* Fitch warning on Spain ratings overshadows bill sale
* Spanish yields may have fallen too far -- analysts
By Emelia Sithole-Matarise
LONDON, Jan 15 Bund prices rose on Tuesday with
higher yields luring investors back into the euro zone's most
liquid bonds after their recent sell-off, auguring well for a
German debt sale on Wednesday.
A warning by Fitch that Spain's ratings could still be cut
even if it avoided seeking a bailout overshadowed a successful
bill sale by Madrid and reversed a fall in Spanish yields,
aiding the rebound in Bunds.
The Bund future jumped 52 ticks on the day to
settle at 143.29, lifting further off a six-week low of 142.05
hit last week.
"Bunds sold off quite aggressively in the first week and a
half and yields backed up a lot so now people are coming back
and we're retracing," a trader said.
Bund yields dipped 4.4 basis points to 1.51
percent. They were seen likely to fall further with Germany
widely expected to draw good demand at a sale of 10-year bonds
on Wednesday, helped by rising concern about looming tough U.S.
talks on raising its debt ceiling.
MORE RATINGS PAIN?
Among higher-yielding euro zone bonds, Spanish and Italian
yields reversed earlier falls after Fitch said Spain would still
face rating downgrade risks even if it avoided having to ask for
"There's a little bit of risk-off occurring. We've seen some
comments coming from Fitch about Spain and their rating and how
that's still in danger," said David Keeble, global head of fixed
income strategy at Credit Agricole.
Spanish 10-year yields were last flat on the
day at 5.03 percent, having fallen to 4.99 percent earlier after
Madrid sold 5.75 billion euros of treasury bills, above its
initial target and meeting solid demand
Italian yields were up 4 bps at 4.23 percent,
bouncing off the day's low of 4.14 percent hit on strong demand
for a 15-year bond sold via syndication.
Some analysts said further falls in Spanish yields might be
limited with more bond auctions due on Thursday and signs that
the market could be struggling to digest the large amount of
debt on offer at current yield levels, especially in Spain.
"We had a convincing auction of Spanish T-bills," said DZ
Bank rate strategist Christian Lenk. "But sizes are rather large
and maybe it has weighed a bit on Spanish debt already. I think
they might become more cautious in the future and it will be
hard to see ... over achieved (auction) targets."
With the backstop provided by the European Central Bank's
new bond buying programme -- which could be activated if a
country sought financial aid from its euro zone partners --
Spanish yields have fallen from close to 8 percent mid-2012.
Other analysts say the rally may have gone too far.
Rabobank rate strategist Lyn Graham-Taylor expected yields to
gradually rise away from the 5 percent level as a heavy funding
calendar was likely to eventually take its toll.
"Spain's next issuance (in 2013) is a really chunky figure,"
he said. "Supply, in our view of the world, will start to
increase pressure on Spain and yields could start rising."
Spain's gross target for bond issuance in 2013 stands at
121.3 billion euros. Last year it issued 97 billion euros worth
of bonds and made private debt sales of 16 billion euros, far
exceeding its original target of 86 billion.