* Spain plans to issue up to 4.5 bln euros of bonds
* ECB easing bets to support Bunds and narrow spreads
* Greece sets hopes for end-2014 market comeback
By Marius Zaharia
LONDON, May 9 Spanish government bonds were
steady on Thursday before an auction that is expected to draw
strong demand as investors seek to maximise returns in an
environment of low official rates.
Expectations that the European Central Bank will ease policy
further after it cut its key rate last week to 0.50 percent are
keeping Bunds yields close to record lows.
But those meagre returns are also pushing buyers toward
other higher yielding euro zone bonds, lowering the premium they
offer over the German benchmark.
The trend is likely to continue in the near-term as no major
central bank is seen making a U-turn from their current
ultra-easy policy any time soon, analysts said.
Bund futures, a safe-haven asset that throughout
the financial crisis has usually weakened when appetite for
riskier assets picked up, were last 16 ticks higher at 146.01.
Spanish 10-year bond yields were 1 basis point
lower at 4.10 percent. The country aims to issue between 3.5
billion and 4.5 billion euros of 2016, 2018 and 2026 bonds.
"We've got Spanish supply to contend with but I expect it
will be fine in the current environment," one trader said. "As
much as the periphery rallies at the moment I don't think it
will weigh on Bunds. Bunds are cheap given the rate outlook."
Lower-rated euro zone issuers have been successful in May.
Portugal found strong foreign demand for its first 10-year
bond sale since its bailout in 2011 on Tuesday, while Slovenia,
just two days after Moody's downgraded it to junk status,
borrowed $3.5 billion to stave off a bailout last week.
Greece, which has been bailed out with some 200 billion
euros in loans from the European Union and the International
Monetary Fund since May 2010 and has restructured its debt last
year, hopes to come back to the market around the end of 2014.
Even though the weaker euro zone economies are yet to show
signs of recovering and their debts and budget deficits remain
stubbornly high, analysts see their bonds rallying further and
some are shy of ruling out Greece's market comeback.
"There is a lot of liquidity in the market offering support
for the periphery. If this situation continues ... and the
economy improves there (in Greece) then (a return to markets) is
a possibility," said UniCredit strategist Luca Cazzulani.
"But the end of 2014 is so far away that the uncertainty of
any forecast is huge, especially as Greece is a country where
many things are unclear. So I will not make a (prediction)."
Greek 10-year yields were 2 bps lower on the
day at 9.64 percent, having hit a post-restructuring low of 9.56
percent earlier in the session. In June 2012, at the height of
market fears that the country might leave the euro zone, its
yields topped 30 percent.