| LONDON, March 20
LONDON, March 20 Euro zone government bond
yields rose on Thursday after the U.S. Federal Reserve indicated
it could raise interest rates sooner than expected, potentially
taking the edge off demand at debt auctions in Paris and Madrid.
In her first press conference as the head of the U.S.
central bank, Janet Yellen said the Fed would probably end its
bond-buying stimulus programme this autumn and could start
raising rates six months later.
The ultra-loose monetary policy in the world's largest
economy has supported investor risk appetite across the globe in
recent years, helping push German Bund yields to record lows
while many stock markets have hit historic highs.
"What she (Yellen) said about the first rate hike - markets
certainly didn't expect her to be so specific," said Jussi
Hiljanen, chief fixed income strategist at SEB in Stockholm.
But he said he did not expect Yellen's comments to trigger a
major trend reversal in bond yields, given low European
inflation and the risk that economic data disappoints.
German 10-year Bund yields, the benchmark for
euro zone borrowing costs, rose 5 basis points on the day to
1.64 percent. Most euro zone bond yields were 2-5 bps higher.
Spain is due to sell 4-5 billion euros of 2017, 2019 and
2028 bonds, with results due at around 0930 GMT. About half an
hour later, France will publish the results of a sale of 7-8
billion of 2016, 2017 and 2019 fixed-rate bonds and 1.0-1.5
billion of bonds linked to French and euro zone inflation.
"We could see less demand than at previous auctions but
nothing like a failed auction or anything close to it," said
Daniel Lenz, lead market strategist for the euro zone at DZ Bank
"If I was worried about something it would be more the
French auction than the Spanish one," he said, adding that in an
environment where bonds were hit across the board, investors
would be better off in Italy and Spain than in the core
countries due to the general yield pick-up.
The initial reaction to Yellen's signal suggested many in
the market shared his view, with lower-rated bonds outperforming
the top-rated ones.
French 10-year yields rose 4 bps to 2.20
percent, while Spanish and Italian
yields rose 3 bps to 3.37 percent and 3.42 percent,
respectively. Portuguese and Irish yields rose 1-2 bps.
(Reporting by Marius Zaharia; Editing by John Stonestreet)