* Market pauses for breath after ECB-inspired rally
* Italy, Ireland, Germany, Austria among issuers this week
* Demand for lower-rated bonds firm as new ECB loans eyed
By Emelia Sithole-Matarise
LONDON, July 7 Italian and Spanish bond yields
nudged higher on Monday before a slew of debt sales this week,
but underlying sentiment in the lower-rated euro zone bonds
remained firm thanks to a dovish European Central Bank.
Adding to traders' relative caution was a newspaper report
saying global banking regulators were considering ending the
long-standing treatment of all government bonds as potentially
The euro zone bond market, which rallied sharply last week
after the ECB said it could print money to support the region's
economy, paused to prepare for debt sales due in Italy, Ireland,
Germany, Austria, the Netherlands and possibly Greece.
The sales are widely expected to go smoothly, with demand
especially strong for peripheral bonds which still offer
relatively higher yields than core debt.
"There's a little more supply this week from European
treasuries so many investors may try to take the opportunity
before the summer break to buy into primary auctions to get
higher yields offered by the periphery," said Felix Hermann, a
market strategist at DZ Bank.
"I doubt we will see a lot of (price) concession. We also
have lots of coupon payments coming up and the talk from ECB
officials this week should support the environment for euro zone
govvies (government bonds) in general."
Italian yields rose as much as 3 basis points to 2.73
percent before retreating to trade a touch up at
2.70 percent. The Italian Treasury will give details later on
Monday on the maturities and size of bonds it plans to sell
later in the week.
Spanish equivalents were 1 bps higher on the day at 2.68
Some in the market expect Greece to sell a new three-year
bond this week, its first after it successfully returned to debt
markets in April with a five-year bond issue. Athens told
Reuters last month it planned to issue a seven- or three-year
bond before August. Greek 10-year yields were 2 bps higher at
The rest of the euro zone bond market held broadly steady
following last week's sharp rally after the ECB said banks could
borrow as much as 1 trillion euros in cheap four-year loans that
will be offered in September and December.
Some market participants were also mulling the potential
impact of a Wall Street Journal report saying global banking
regulators were considering new measures that would make it
harder for banks to understate the riskiness of their assets.
This included potentially ending the long-standing treatment of
all government bonds as risk-free, the newspaper said, citing
people familiar with the discussions.
Given that domestic banks are major buyers of government
bonds in many countries, especially in the weaker economies,
big changes to the risk weighting of the bonds could jolt the
market, analysts said.
Nordea strategists said that, while such a major shift was
unlikely, "even more modest changes would put some upside
pressure on the bond yields of the riskier countries".
"Given where peripheral valuations are, with some people
maybe thinking they are beginning to look stretched, these sorts
of headlines do not help," one trader said.
(Editing by Gareth Jones/Ruth Pitchford)