* Spain sells at upper-end of target, yields fall at auction
* Bund sells-off into auction, hits session low after
* French auction also meets strong demand
By Ana Nicolaci da Costa
LONDON, Jan 17 German Bund futures fell on
Thursday as healthy demand at a Spanish bond sale underscored
the country's ability to raise funds with greater ease, allowing
it to continue to avoid a sovereign bailout.
Improved sentiment towards struggling euro zone economies
helped Spain cut its borrowing costs as it sold just above the
top end of its target range.
With this auction, Spain has already completed close to 9
percent of its 2013 longer-term borrowing needs.
"They did not exceed their target but the auction was by and
large satisfactory," Sergio Capaldi, fixed income strategist at
Intesa SanPaolo said. "It's another small step towards the
complete normalization of the financing conditions in Spain."
The German Bund future fell to a session low of
142.70 after the auction, having started to sell off before the
sale on expectations of a good result.
It was 56 ticks lower on the day at 142.81, having opened in
positive territory and after three days of gains.
Ten-year Spanish yields were little changed,
up 1.3 basis points on the day at 5.07 percent.
"Yields were lower than at the past auction, demand looks
good. It fits in the trend we've seen so far. It is a reflection
of strong liquidity and improved sentiment towards peripherals,"
Alan Mcquaid, chief economist at Merrion Stockbrokers, said.
France also saw firm demand at a short- and medium-term debt
sale as the country continued to benefit from investors looking
for higher return that those on safe-haven German debt.
The 2015 French bond saw bids worth 2.9 times the amount on
offer, while the 2017 bond attracted a 2.8 bid-cover and the
2018 bond a 1.9 bid-cover.
French yields rose in the secondary market after the auction
as the market absorbed the supply, also tracking a broader
sell-off in safer debt. Ten-year yields were were
5.1 basis points higher at 2.18 percent.
Appetite has been strong for both the least risky and
lower-rated bonds at auctions this year - a phenomenon ascribed
to ample liquidity as investors allocate funds at the start of
the year and to an overhang from major central banks'
ultra-loose monetary policies.
To play on this trend while not taking on too much risk,
Rabobank recommends buying Belgian debt and selling Dutch,
according to Elwin de Groot, a senior market economist at the
"It's not a long-term position but it's more the idea that
in the near term there is such a huge amount of liquidity," he
Ten-year Belgian bonds yielded 2.27 percent,
compared to 1.75 percent on the equivalent Dutch bond