* Lower-rated debt falls along with global equities
* Italian debt also under selling pressure before auction
* Bunds rise, appetite for safety seen resuming
By Ana Nicolaci da Costa
LONDON, June 13 Yields on lower-rated euro zone
bonds rose on Thursday as riskier assets came under selling
pressure and investors braced for a sale of Italian debt against
a challenging backdrop.
Japanese stocks fell over 6 percent as the prospect of
reduced stimulus from central banks roiled markets and European
shares opened lower, setting the tone for the day's trading.
Financial markets have been unnerved by fears that the U.S.
Federal Reserve could soon start scaling back its bond
purchases. Investors will look at U.S. retail sales and weekly
jobless claims later this session to gauge the possible timing.
Italy is expected to pay more to raise funds for a sale of
three-year and 15-year debt as sentiment towards riskier assets
"It is partly to do with the auction but especially with the
Japanese (moves) in global markets. We had an aggressive
sell-off in (Japanese stocks) ... I think there is more
liquidation of carry trades globally," one trader said.
Carry trades refer to the practice of borrowing money
cheaply to invest in higher-yielding assets and make a profit.
Ten-year Italian government bond yields rose 5
basis points to 4.42 percent and Spanish yields
were up 3.6 bps at 4.66 percent, but the debt of more vulnerable
issuers like Portugal and Greece were particularly hard hit.
Portuguese yields rose 18 basis points to 6.62
percent and Greek yields rose 32 basis points to
Greek yields hit their highest since early May at 10.85
percent, after Athens failed to sell state gas firm DEPA on
Monday, putting it at risk of missing bailout targets, and as
the country slipped back to crisis mode.
Safe-haven German bonds, which have recently suffered in
tandem with equities on concerns over the future of central bank
stimulus, rebounded. Traders said appetite for safety was
resuming after the paper had been oversold.
German Bund futures were 38 ticks higher at 143.17.
"I think we have almost got a risk of a flight-to-quality
type trading coming back into Bunds," one trader said.
Alessandro Giansanti, senior rate strategist at ING said
demand from domestic banks would likely support the Italian debt
sale, in particular the three-year bond which falls within the
scope of potential ECB bond-buying.
"I don't expect it to be a problem in terms of demand, of
course it (will) be a problem in terms of pricing. The pricing
will be higher than the previous auction but it is still at
manageable levels for the Italian Treasury."
He said if 10-year yields moved back close to 6 percent,
they would become a problem again.
Italy's one-year debt costs rose at an auction for the first
time in three months on Wednesday.