* Italian auction seen smooth as investors look for yield
* Talk of Spanish syndicated deal persists
* Bunds edge up but hold near six-week lows
By Marius Zaharia
LONDON, May 13 Italian yields edged up before a
bond sale on Monday, while Bund futures recovered from six-week
lows after a European Central Bank policymaker reiterated a
deposit rate cut was possible.
Italy will offer up to 8 billion euros of fixed-rate bonds
and debt linked to 6-month Euribor (CCTEUs) at its regular
mid-month auction. Traders said investors sold Italian bonds
early in the session to make room for the new supply.
Appetite for Italian and other high-yielding euro zone debt
has been strong this year as ultra-easy central bank policies
have depressed benchmark yields and pushed investors towards
riskier assets in search for higher returns.
"I believe the auction will go well," said Mathias van der
Jeugt, rate strategist at KBC in Brussels.
"The amount on offer is relatively low and can be easily
digested. We've seen some marginal cheapening over the past few
days ... and investors' hunger for yield isn't over yet."
Italian 10-year yields were 5 basis points
higher on the day at 3.95 percent, having hit a 2-1/2 year low
of 3.682 percent hit at the beginning of May.
Analysts said speculation Spain could launch a syndicated
debt sale could weigh on peripheral bonds, as the market would
have to absorb a significant amount of debt after Madrid sold
more than planned at an auction last Thursday.
The Spanish government has not commented, but market talk
persists after strong syndicated debt sales by Portugal and
Slovenia earlier in May.
"It might put some pressure on Spanish bonds in the near
term if rumours persist but I don't think it would be a reason
to delay it or not to do it," van der Jeugt said.
Spanish 10-year yields were 5 bps higher at
At the other end of the credit spectrum, German Bund futures
were 18 ticks higher on the day at 144.84, after
matching Friday's six-week low at 144.43 at the open.
Forecast-beating U.S. jobs figures and German industrial
output data last week contributed to a sharp retreat in Bund
futures after they hit record highs at 147.20 on May 2.
Comments by ECB governing council member Ignazio Visco that
the central bank could cut the deposit rate into negative
territory if the economy needed more help eased expectations
that better data could prompt the ECB to hold fire.
Traders also said the dollar's rise to 4-1/2 year highs
against the yen on Friday has prompted selling of
Treasuries and Japanese bonds, with Bunds caught in the
downdraft. But the impact on Bunds seemed to be fading.
"We took the lead from Japan (on Friday) and we never really
recovered ... but presumably a lot of the long (positions in
Bunds) haven been taken out," one trader said.