June 9, 2020 / 7:45 AM / a month ago

Euro zone bond yields steady; focus on issuance

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

LONDON, June 9 (Reuters) - Euro zone bond yields were mostly steady early on Tuesday before a supply-heavy session, with lower-rated states expected to raise large amounts through syndicated sales.

Ireland is selling a 10-year and Spain a 20-year bond via syndication, when borrowers hire a group of banks to sell a bond directly to investors, helping them increase the size of the issue. Greece is expected to start a sale as well, after hiring banks on Monday.

“Following the improvement in market sentiment related to the EC next generation EU package and the increase in the PEPP, issuers are moving rapidly to exploit the favorable funding conditions,” UniCredit analysts told clients, referring to the European Union’s 750 billion-euro recovery fund proposal and the European Central Bank’s 600 billion-euro increase to its emergency bond purchases.

Both have boosted the bonds of lower-rated euro zone countries. The recovery fund will provide 500 billion euros in grants to help the worst-hit countries recover from the coronavirus pandemic. That won’t count towards their own debt, while the ECB’s purchases have been crucial to holding down their borrowing costs.

The Italian Treasury also announced a new retail-only bond on Monday. Proceeds will be entirely used to fund measures to help economic recovery from the coronavirus.

German exports and imports collapsed in April, posting their biggest declines since 1990, but bonds showed little reaction. Germany’s 10-year benchmark was down 1 basis point to -0.33%.

It fell 5 bps during the previous session when ECB President Christine Lagarde defended the aggressive stimulus measures taken by the ECB in response to the coronavirus pandemic.

She referred to “proportionality” and “cost-benefit analysis”, key words from a German constitutional court verdict that gave the ECB three months to justify the bond purchases or lose the German Bundesbank’s participation.

Southern European bond yields were higher, with Italy’s 10-year yield up 1 bp at 1.42%. Spain’s 10-year yield was up 3 bps. Bond yields usually rise during a sale as investors make room for the new supply.

Reporting by Yoruk Bahceli, editing by Larry King

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