* Portugal selling 5-year bonds via syndication
* Lisbon seeks to confirm market access before bailout exit
* Spain to auction up to 5 billion euros of 5-year debt
* ECB's ultra-easy stance supports demand for periphery debt
By Emelia Sithole-Matarise
LONDON, Jan 9 Portuguese and Spanish yields
edged up on Thursday before bond sales from the two countries
were expected to draw good demand from investors enticed into
euro zone periphery debt by an improving economic outlook.
Portugal is taking advantage of benign market conditions and
a fall in its yields to sell five-year bonds via a syndicate of
bonds as it seeks to prove it has full market access before a
planned exit from an international bailout later this year.
Spain will auction up to 5 billion euros ($7 billion) of new
five-year bonds, hoping to capitalise on improved investor
sentiment after years of surging financing costs to successfully
kick off a busy 2014 funding programme.
Strong demand on Tuesday for Ireland's first bond sale since
it exited its EU/IMF bailout boded well for the bond sales and
analysts expected Spanish and Portuguese yields to resume their
falls once they are out of the way.
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 bonds.
The ECB is seen holding interest rates at a record low 0.25
percent after its meeting on Thursday while reiterating it will
ease policy if inflation stays too low or money market
conditions tighten too much.
Portuguese 10-year yields were last 3 basis
points up at 5.47 percent, a marginal retreat from the 70 bps
decline so far this year while five-year yields were 6 bps
higher at 4.17 percent.
Spanish 10-year yields were 1 basis point up
at 3.89 percent, having fallen 40 bps this year to four-year
lows, while five-year yields were a touch up.
"Demand for papers is strong in the European bond market.
For Portugal it's also to do with better prospects and the fact
that Portugal may not need a second bailout plan but may keep
the opportunity to ask for a precautionary programme," said BNP
Paribas strategist Patrick Jacq.
"The market is positioned for tighter spreads, for the
normalisation in the euro zone. We had some limited signs of
economic recovery in these countries or at least that the worst
is over. The global situation is improving."
Confidence in most euro zone states' ability to fund
themselves easily in secondary markets this year is in sharp
contrast to recent years, when soaring yields risked shutting
Italy and Spain - the euro zone's third and fourth largest
economies - out of the markets.
Investor appetite for junk-rated Portuguese bonds has also
perked up on bets that rating agencies could upgrade the
country's credit standing.
Moody's is due to announce its review for Portugal on Friday
while Standard & Poor's will give its decision next week under
new EU-regulated scheduled ratings announcements.
"We expect good news," said Societe Generale strategist
Ciaran O'Hagan of the pending ratings review. "A successful tap
(bond sale today) will prove to the rating agencies that
Portugal is back in the game."
He foresaw Portuguese five-year bonds rallying and
outperforming Italian and Spanish equivalents after the sale.
"As long as investors are chasing yield and are pushed into
the 'sustained stability' trade - quest for return plus momentum
plus lower spread volatility - expect the five-year Portuguese
(spreads) to tighten further against sovereigns with lower
betas, such as Bonos and BTPs."