* ECB's Lautenschlaeger comments show QE could be far off
* Upcoming supply adds to selling pressure in periphery
* Softer equities fueled demand for core euro zone bonds
(Updates prices, adds fresh comments)
By Marius Zaharia
LONDON, July 8 The yields on lower-rated euro
zone bonds rose on Tuesday, as selling pressure ahead of large
new debt issues picked up after a European Central Bank board
member talked down the prospect of a broad-based asset-buying
The ECB's Sabine Lautenschlaeger, a former Bundesbank vice
president, said an asset-buying programme should only be
implemented as an emergency measure if there was an immediate
risk of deflation.
Her comments show the strength of opposition in some
quarters at the ECB to such a policy. Traders said they led to
some selling pressure in bond markets although the impact was
limited as the Bundesbank is known for its reluctance to pursue
quantitative easing (QE).
"These comments are not helpful for the periphery," said
Orlando Green, a fixed income strategist at Credit Agricole.
"There has been some disappointment in the market that the
ECB is still playing more of a passive role with the TLTROs (new
four-year loans) as they depend on banks appetite, whereas with
QE it would be more active."
Spanish 10-year yields rose 4 basis points to
2.72 percent while Italian equivalents were 3 bps
higher at 2.84 percent, respectively. Portuguese and Greek
yields also rose.
Peripheral bonds have benefited from speculation that the
ECB may be forced to fight very low inflation by printing money
at some point.
But other ECB actions continue to support the market. The
central bank cut all its main interest rates last month and
promised up to 1 trillion euros in cheap, long-term loans to
euro zone banks.
Italy and potentially Greece plan to issue bonds later in
the week and traders said they were feeling some selling
pressure from investors who want to make room on their books for
the new paper.
Some analysts said yields should start falling again soon
after the sales. German, Austrian and Dutch yields did just that
after their debt auctions on Tuesday. Core bonds were also
helped by a softer tone in equity markets, lifting German Bund
futures to a new contract high of 147.40, up 44 ticks on the
Earlier, Germany sold 1 billion euros of 2018
inflation-linked bonds, Austria sold 1 billion of 10- and
30-year bonds, while the Netherlands raised 2 billion euros of
"The overriding theme is probably still the hunt for yield
which should resume soon after supply," said Rainer Guntermann,
rate strategist at Commerzbank.
(Additional reporting by Emelia Sithole-Matarise; Editing by
Andrew Heavens and Hugh Lawson)