* 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 Emelia Sithole-Matarise and Marius Zaharia
LONDON, May 7 German Bund futures fell to a
three-week low on Tuesday while Italian and Spanish bond prices
advanced on Tuesday as loose monetary policy by the world's
major central banks fanned demand for higher-yielding assets.
Portugal's debt lagged other peripheral euro zone bonds as
investors made room for its first 10-year issue since its
bailout. The country's debt agency said the issue drew strong
interest from foreign investors.
The sale dented demand for low-risk Bunds but was expected
to spur a rally in peripheral euro zone debt and Portugal's
yields were tipped to resume falling soon.
Bunds extended falls triggered on Friday by a better than
expected U.S. non-farm payrolls report, offsetting comments by
the European Central Bank President Mario Draghi that the
central bank was ready for a negative deposit rate.
"Risk assets are being generally supported by central bank
policies. There could be a rotation in portfolios but the Bund
selloff was prompted by the non-farm payrolls," said Harvinder
Sian, a strategist at RBS.
"The interpretation of that data is overdone and ultimately
the selloff is a buying oportunity so I wouldn't expect the Bund
to go too far from where we are today."
Bund futures settled 73 ticks down on the day at
145.66, continuing a retreat from record highs of 147.20 hit
last week, after the ECB cut its key rate to 0.50 percent and
signalled it was ready to do more.
Cash 10-year German yields 5 basis points
higher at 1.297 percent.
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 Draghi in comments made on Monday
- is likely to keep Bund yields anchored at low
EYEING BAILOUT EXIT
Spanish and Italian 10-year
yields dropped 3-6 basis points to 4.08 and 3.80 percent,
Highlighting the strong investor appetite for higher
returns, European books alone for Portugal's syndicated bond
sale closed at 9 billion euros with bidders looking for a yield
of 5.6 percent. Portugal was hoping to raise 3 billion euros
from the sale.
"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 3 basis
points higher on the day at 5.55 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".