* Up to 60 bln euros of coupon, debt repayments due this wk
* German 10-year yields also fall to record lows
* Portuguese yields underperform after Monday's sharp rally
By Emelia Sithole-Matarise
LONDON, July 29 Spanish and Italian bond yields
hit the latest in a series of record lows on Tuesday with
investors looking to 60 billion euros of coupon and debt
repayments from the two countries this week to return to the
Yields on 10-year German bonds, the benchmark for euro zone
borrowing costs, also touched all-time lows with the prospect of
a fresh round of longterm loans to banks from the European
Central Bank from September also supporting demand for euro zone
With Italy the only euro zone country to sell debt this
week, cash flow will be ample in the market, keeping euro zone
yields subdued at or near historic lows.
"This is added liquidity which must be reinvested," said
Patrick Jacq, an interest rate strategist at BNP Paribas.
"The environment favours carry trades," he said, referring
to trades where banks use cheap central bank money to invest in
peripheral euro zone bonds that still offer relatively higher
yields than those in core debt, despite a two-year rally.
Spanish and Italian 10-year yields slipped 1.5
basis points to 2.49 percent and 2.65 percent respectively while
equivalent Irish yields were 2.5 bps down at an
all-time low of 2.18 percent.
Given the glut of coupon and debt repayments, Italy's
auction of up to 7 billion euros of five- and 10-year
fixed-rated bonds and five-year floating-rate notes linked to
euro zone inflation due on Wednesday is expected to draw solid
Portuguese 10-year yields rose 3 bps to 3.62 percent
, pausing for breath after a sharp rally on Monday
to one-month lows after Moody's upgraded the country's credit
rating and dismissed concerns that troubles at its largest bank
Monday's rally paused as investors digested comments by
Portugal's central bank late on Monday that if Banco Espirito
Santo posts a loss larger than its existing cushion of
2.1 billion euros, a capital increase will be used to guarantee
adequate solvency levels.
Market participants said that much of the anxiety over the
impact on government finances was overdone.
"The degree of handwringing over the ESI/ESFG credit
situation, in Portugal, seems excessive, if for no other reason
that the sums involved are sub-critical for Portugal," Credit
Agricole strategists said in a note.
"Summer has brought some periphery pressure in recent years
but, on the whole, that dynamic has proved to be a buying
(Editing by Mark Heinrich)