* Yields rise on syndication talk after solid bond sale
* Italian yields follow Spain up but outperform
* ECB easing bets to support Bunds, narrow spreads
* Greece sets hopes on end-2014 return to debt market
By Marius Zaharia and Emelia Sithole-Matarise
LONDON, May 9 Spanish yields rose on Thursday on
speculation the country was planning to offer more bonds via a
syndicated deal soon, after its borrowing costs dropped sharply
at an auction earlier in the day.
Spain sold slightly more than planned at a triple-bond sale
where demand was slightly weaker, but analysts and traders said
it still looked healthy and was no reason to sell the paper.
Spanish authorities were not immediately available for
comment. But some in the market said Spain may look to take
advantage of increased appetite for higher-yielding debt with a
syndicated offer, further encouraged by Portugal's solid 10-year
debt sale on Tuesday.
"The auction went OK, but there are rumours of a syndicated
deal next week," one trader said. "So there is a lot of supply
in a short period of time and we also believe Spanish yields
have fallen far too far, far too fast."
The country's 10-year bond yields were 9 basis
points higher on the day at 4.20 percent, compared with around
4.10 percent before the auction, dragging equivalent Italian
yields in their wake.
They have fallen from about 7.8 percent in mid-2012, before
European Central Bank President Mario Draghi said he would do
whatever it took to save the euro, to 2-1/2 year lows of 3.95
percent last week.
Expectations that the European Central Bank will ease policy
further after it cut its key rate last week to 0.50 percent are
anchoring German 10-year yields near record lows and pushing
investors towards higher-yielding assets to maximise returns.
Some analysts say the trend of narrowing yield spreads
between German bonds and the rest of the euro zone's debt is
likely to resume, as no major central bank is expected to shift
away from an ultra-easy policy stance any time soon.
"The downside for peripherals is limited because the ECB
continues to act as a backstop. In the current desire for yield
pickup investors are also hopeful that Japanese fund managers
will start to increase their exposure to Europe in coming
months," said RIA Capital Markets strategist Nick Stamenkovic.
Bund futures, a safe-haven asset that throughout
the financial crisis has usually weakened when appetite for
riskier assets picked up, settled 4 ticks up at 145.89.
"Bunds are cheap given the rate outlook," a second trader
BUSY MONTH FOR PERIPHERAL DEBT
Speculation of a Spanish syndication deal was also fuelled
by the success other lower-rated euro zone sovereigns have had
this month in borrowing on markets.
Portugal found strong foreign demand for its first 10-year
bond sale since its bailout in 2011 on Tuesday, while Slovenia
managed to borrow $3.5 billion to stave off a bailout last week,
just two days after Moody's downgraded it to junk status.
Greece, bailed out with some 200 billion euros in loans
since May 2010 and having restructured its debt last year, hopes
to come back to the market around the end of 2014, its finance
"It is a scenario, but it's not my base scenario," said
Gabriel Sterne, an economist at distressed debt brokerage
Exotix. "It depends whether the decline in yields ... translates
into growth for the real economy."
Greek 10-year yields were last 4 basis points
lower on the day at 9.70 percent, having hit a
post-restructuring low of 9.44 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.