| LONDON, July 21
LONDON, July 21 Yields on lower-rated euro zone
bonds slipped on Monday as riskier assets tentatively recovered
on hopes the coming days might bring a diplomatic solution to
the Ukraine crisis after the downing of an airliner over the
country last week.
The fact the situation did not deteriorate over the weekend
stabilised markets, though the lack of concrete developments
kept price moves modest and benchmark German yields pinned near
The plane crash on Thursday, blamed by Western countries on
pro-Russian rebels in Ukraine, prompted a sell-off in riskier
assets such as equities and drove investors into the perceived
safety of top-rated government bonds.
The incident intensified tensions between the West and
Russia, which initially flared after Russia annexed Ukraine's
Crimea region and expressed support for separatist rebels in the
east of the country.
Some in the market reckon the loss of the Malaysian jet will
trigger a diplomatic solution to the worst crisis between Russia
and the West since the Cold War.
"Investors don't seem as worried as they were last Friday,"
said Christian Lenk, a strategist at DZ Bank. "There are simply
some hopes now implicitly that maybe we have seen a culmination
of that conflict and may see some easing in the near future."
Italian 10-year yields were 2 basis points
down at 2.79 percent while Spanish equivalents were 1.5 bps
lower at 2.61 percent.
SPAIN PLANNING 50-YEAR BOND?
Traders were keeping an eye on a potential debt sale from
Spain, after a newspaper report said Madrid could sell a 50-year
bond via private placement.
Spanish financial daily Expansion quoted Inigo Fernandez de
Mesa, the head of treasury, as saying that he could not rule out
a 50-year private placement since demand for ultra-long term
paper among international investors has grown.
Spain and Italy have met more than 70 percent of their
funding needs for this year, taking advantage of record low
borrowing to frontload bond sales and extend the maturity of
Hefty redemptions and coupon payments later in the month and
about 1 trillion euros in cheap loans to banks from the European
Central Bank due from September were also supporting demand for
peripheral euro zone bonds, which still offer a relatively
higher yield pick-up over core bonds.
German 10-year yields, the benchmark for euro
zone borrowing costs, were a touch lower at 1.15 percent, within
sight of an all-time low of 1.126 percent hit at the height of
the debt crisis in mid-2012.
"In the absence of more bad news, core yields could creep a
bit higher today, but in general the upside still looks limited
in the near term, as risks remain the geopolitical tensions will
only increase and the cash flow picture remains rather
supportive," Nordea strategists said in a note.
(editing by John Stonestreet)