* 60 bln euros of coupon, debt repayments due this week
* German 10-year yields also fall to record lows
* Portuguese yields underperform after Monday's sharp rally
(Updates prices, adds BES scrapping shareholder meeting, quote)
By Emelia Sithole-Matarise
LONDON, July 29 Spanish and Italian bond yields
hit the latest in a series of record lows on Tuesday on
expectations 60 billion euros of coupon and debt repayments this
week will be reinvested.
At the same time, yields on 10-year German bonds, the
benchmark for euro zone borrowing costs, touched all-time lows
with analysts saying some investors were likely betting on weak
inflation data later this week bolstering the case for potential
asset purchases from the European Central Bank.
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 fell 3
basis points to 2.46 percent and 2.64 percent
respectively while equivalent Irish yields were
also down a similar amount at a record low of 2.17 percent.
German 10-year yields slid to 1.12 percent,
below a previous record plumbed at the height of the euro zone
debt crisis in mid-2012. Investors' focus is on flash euro zone
inflation, due on Thursday and forecast to remain subdued at 0.5
percent in July though some are expecting an even weaker figure.
"Maybe investors are putting bets on lower inflation figures
in Europe but perhaps it's a bit too risky for that. If we have
a very low figure I'm sure some investors will start expecting
more easing from the ECB but it's too early," said Cyril Regnat,
a fixed income strategist at Natixis.
Against the falling trend in yields across most of the
market, Portuguese 10-year yields edged up 2 bps to 3.61 percent
as shares in Banco Espirito Santo came
under renewed selling pressure.
A newspaper report said BES, Portugal's biggest
bank, was likely to post a huge first half loss that could wipe
out its capital buffer and force a new capital increase. The
bank also cancelled a shareholder meeting that had been
scheduled for July 31 after its largest shareholder was granted
Portugal's central bank said late on Monday that if BES'S
loss is larger than its existing cushion of 2.1 billion euros, a
capital increase will be used to guarantee adequate solvency
"You don't want to hear things like that as an investor ...
There are still concerns over the state of the banking sector in
Portugal," said Sergio Capaldi, fixed income strategist at
Intesa SanPaolo in Milan.
The news braked Monday's sharp rally in Portuguese bonds
after Moody's upgraded the country's credit rating. Some market
participants, like the rating agency, believe the problems
around BES should not have a big impact on the bond market.
"The degree of hand wringing over the ESI/ESFG credit
situation in Portugal seems excessive, if for no other reason
than 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
(Additional reporting by Marius Zaharia; Editing by Ruth