* Hunt for yield resumes in lower-rated debt markets
* Portugal poised to sell 1st 10-year bond since bailout
* Bund futures continue retreat from record highs
By Marius Zaharia
LONDON, May 7 Portugal's debt lagged other euro
zone bonds on Tuesday as investors made room for its first
10-year issue since its bailout, highlighting strong demand for
lower-rated euro zone debt.
Portugal was looking to raise 3 billion euros in the
syndicated deal at a yield around 5.6 percent.
The sale was expected to fan a rally in debt from the
region's periphery, supported by easing measures taken by the
world's largest central banks, and Portugal's yields were tipped
to resume falling soon.
"It looks like a pretty good deal," said Annalisa Piazza,
market economist at Newedge. "The general sentiment in the
periphery has given support to Portugal. It is another step ...
(towards) getting out of the euro zone debt crisis."
Portuguese 10-year yields were last 5 basis
points higher on the day at 5.57 percent. Early in 2012, when
investors believed Portugal would follow Greece and restructure
its debt, the 10-year yield topped 17 percent.
Piazza said Portuguese yields could resume falling after the
market digested the new supply, but did not expect a major rally
as peripheral yields have already reached levels that "price in
a very favourable scenario for the peripheral economies."
Spanish and Italian 10-year
yields dropped 3-5 basis points to 4.08 and 3.82 percent,
German Bund futures fell half a point to 145.66,
continuing a retreat from record highs of 147.20 hit last week,
after the European Central Bank cut its key rate to 0.50 percent
and signalled it was ready to do more.
Cash 10-year German yields were 4 basis points
higher at 1.29 percent.
Traders pointed to good demand in Portugal denting demand
for low-risk assets, and also to some investors who used a 1.2
billion euro sale in Austria as an opportunity to sell Bunds and
switch into higher-yielding top-rated paper.
Bund futures fell by about a point on Friday after a
better-than-expected U.S. nonfarm payrolls report raised
expectations that the economic recovery in the United States was
Analysts and traders said the current retreat is likely to
be only temporary, as the possibility that the ECB may ease
policy further - reinforced by ECB President Mario Draghi in
comments made on Monday - is likely to keep Bund
yields anchored at low levels.
"I'm pretty sure people will be buying this dip (in prices)
soon," another trader said.