June 10, 2020 / 11:07 AM / 2 months ago

UPDATE 3-Germany brings second syndication this year; Southern European yields jump

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details; comments)

By Yoruk Bahceli and Elizabeth Howcroft

LONDON, June 10 (Reuters) - German Bund yields fell on Wednesday as the country received strong demand for a top-up of a 30-year bond, while Southern European bond yields rose under pressure from a heavy pace of issuance.

Germany raised 6 billion euros through a reopening of its August 2050 bond via a syndicate of banks.

It was Germany’s second sale this year via syndication, where a borrower hires banks to sell debt directly to investors, after an issue in May.

Syndication helps borrowers raise large sums, but is more costly than a traditional bond auction. The scale of debt Europe’s largest economy needs to raise to fight the fallout from the coronavirus has pushed it to issue debt through a format it had previously used last in 2015.

Germany drew 31.5 billion euros of orders for the sale, although that total fell from an earlier 44 billion euros after the bond was priced to pay no premium to outstanding bonds.

“There is huge demand for bonds from the euro zone, especially for Bunds, for safe havens, so I would say most people don’t trust the recent optimism that you can see in the market,” said Rene Albrecht, rates strategist at DZ Bank.

Further syndicated sales are possible in the second half of the year, but this is undecided, a spokeswoman for Germany’s finance agency told Reuters.

Finland also raised 3 billion euros through a 20-year bond, while Portugal sold 1.51 billion euros of six- and 10-year bonds at auction.

It has been a supply-heavy week, with Ireland, Spain and Greece selling chunky bonds via syndication on Tuesday.

But the scale of fundraising has put pressure on lower-rated sovereigns in Southern Europe, whose yields have risen sharply.

Such debt had been boosted last week by a larger-than-expected increase to emergency bond purchases from the European Central Bank, on top of prospects for a 750 billion euro European Union recovery fund.

Spanish and Portuguese 10-year yields briefly touched two-week highs and were last up 5 basis points on the day, while Italian 10-year yields rose 6 basis points.

“What’s harmed the periphery today is the same as what’s put European credit on the back foot, which is issuance at quite a tight spread in large amounts,” said Peter Chatwell, head of multi-asset strategy at Mizuho.

Investors are focusing on the U.S. Federal Reserve’s meeting. No new action is expected, but any hint of lessening stimulus could hammer risk sentiment.

$1 = 0.8800 euros Reporting by Yoruk Bahceli and Elizabeth Howcroft; Editing by Catherine Evans

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