LONDON Feb 20 Spanish bond yields bounced off
eight-year lows on Thursday as dealers made room for another
chunky debt sale by Madrid, which is trying to capitalise on
improved growth expectations to frontload its bond issuance.
A pick-up in economic growth is key for Spain's goals of
keeping its budget deficit in check and curbing public debt.
The improved sentiment this year has helped Madrid to shift
more than a fifth of its 2014 bond issuance plan already,
setting the pace for the regular euro zone issuers.
A shift in investor perceptions could come from the euro
zone PMI business surveys due in the run-up to the 4-5 billion
euros (5.5-$6.9 billion) auction of five-, 10- and 30-year
French manufacturing and services PMIs came below
expectations. German and regional sentiment surveys are
"Sentiment towards peripherals has been quite good so there
shouldn't be any problems at the auctions," said Jan von Gerich,
chief fixed income analyst at Nordea.
The PMI data could "distort the bidding process" but the
vast amount of bonds already issued by Spain "should build
"They have more freedom to slow down issuance later in the
year if sentiment turns again," he added.
Ten-year Spanish yields were 2 basis points up
on the day at 3.58 percent, up form eight-year lows of 3.499
percent hit early on Wednesday.
Equivalent Italian yields were also slightly
off eight-year lows of 3.54 percent hit in the previous session
as markets showed faith in Prime Minister-designate Matteo
Renzi's ambitious reform agenda.
"There's been a bit of selling in the periphery, but it's
related to the Spanish supply, nothing more sinister than that,"
one trader said.
Expectations that the European Central Bank may ease its
monetary policy further due to low inflation have also directed
flows towards lower-rated bonds such as Spain's and Italy's as
investors search for higher yields.
German 10-year Bund yields, the benchmark for
euro zone borrowing costs, fell 1 basis point to 1.65 percent on
the back of the weak French PMI data.