* Spanish yields hit new four-year lows
* Spanish bond shrug off plans for higher 2014 issuance
* Irish yields near eight-year troughs
* Rally fuelled by growth expectations, strong Irish sale
By Marius Zaharia
LONDON, Jan 8 Spanish bond yields hit new
four-year lows on Wednesday as markets took an increase in
Madrid's planned 2014 debt issuance in their stride, confident a
pick-up in economic growth would ensure sales go smoothly.
Data this year has shown Spain's economy recovering. Its
services sector grew at its fastest in more than six years in
December and the number unemployed fell by 2.24 percent.
Indicators elsewhere have also been positive, and
expectations that the European Central Bank will keep interest
rates low for a long period or even cut them further, have
supported high-yielding euro zone.
Strong demand on Tuesday for Ireland's first bond sale since
it exited its EU/IMF bailout also boded well for Madrid's
Despite Spain planning to sell 133.3 billion euros in
medium- and long-term bonds this year, up from 128.4 billion in
2013, its 10-year bond yields fell 3 basis points
to 3.78 percent - their lowest since late 2009.
Spanish yields have fallen almost 40 bps this year.
"The market is less concerned about (the increase in debt
supply) because of improving conditions in general," said
Annalisa Piazza, market economist at Newedge. "We've seen
Ireland going back to the market, Portugal is expected to follow
... everything is going in the right direction."
Notably, she said, the debt sales target had increased
because of a rise in debt repayments rather than a higher budget
deficit, which is expected to fall.
Plans to issue inflation-linked debt were also expected to
ease the supply pressure on its conventional bonds.
"Spain would be a welcome new entrant into the euro
inflation-linked bond market. It would enable Spain to diversify
its investor base," said Citi strategist Nishay Patel, who
expects Spain to issue about 5 billion euros in inflation-linked
debt this year.
Newedge's Piazza expected Spain to try to sell more debt
early in 2014, as it has in recent years, as investors look to
reinvest about 15 billion euros in redemptions this month.
Madrid plans to sell up to 5 billion euros in bonds on
Thursday, which would be the largest sale in almost a year.
Analysts expect lower-rated states to attempt syndicated
deals after Ireland sold 3.75 billion euros of 10-year bonds.
Some analysts warn investors may demand higher yields if a
large volume of peripheral bonds hits the market in short order.
"That is something to be wary about," Nordea chief fixed
income strategist Jan von Gerich said. "When we get the next
announcements of a syndicated debt issue in Spain, Italy or
Portugal that will affect the market."
Elsewhere, Irish yields dropped 1 bps to 3.27
percent, just shy of Tuesday's eight-year low of 3.26 percent.
The fall in equivalent Portuguese and Greek yields was more
pronounced, as Ireland's sale encouraged investors to bet on
other bailed-out euro zone states following suit.
Ten-year Portuguese yields fell 8 bps to 5.34
percent, having earlier hit their lowest since May at 5.29
percent, while Greek 10-year yields fell 13 bps to
7.68 percent, the lowest since the bonds were issued as part as
a debt restructuring in March 2012.
Yields on top-rated German Bunds, the euro zone's benchmark,
fell 1 bps to 1.88 percent.