Markets News

Euro zone bonds pause after bond sales, US-China trade deal

* Euro zone periphery govt bond yields

LONDON, Jan 16 (Reuters) - Most 10-year bond yields in the euro area were a touch higher on Thursday, with German Bund yields just below two-week highs following the signing of an initial U.S.-China trade deal and two days of new bond sales.

The easing trade tensions and signs the euro zone economy is improving have put upward pressure on borrowing costs. Yet markets appear reluctant to push benchmark German Bund yields above -0.20% without a hawkish signal from the European Central Bank, analysts said.

In early Thursday trade, 10-year German bond yields held just below Wednesday’s two-week high around -0.17%. Most other 10-year euro zone bond yields were higher as caution set in after the signing of the trade deal between the United States and China lent some support to fixed income markets.

The Phase 1 deal fails to address structural economic issues that led to the trade conflict, does not fully eliminate the tariffs that have slowed the global economy, and sets hard-to-achieve purchase targets, analysts and industry leaders said.

“We are happy with the Phase 1 trade deal, but we think there is a fundamental problem that won’t go away, so we are more careful not to overestimate the positive news,” said Wouter Sturkenboom, chief investment strategist for EMEA at Northern Trust Asset Management.

This week’s stellar syndicated bond deals from Spain and Italy remained in focus.

Analysts said the allocation statistics of Wednesday’s Italian 30-year bond deal was in focus after the buying breakdown of a Spanish sale earlier in the week showed a lack of interest from Asian investors.

A 10 billion-euro sale of Spanish 10-year government bonds on Tuesday attracted demand of more than 52 billion euros ($57.88 billion). Italy on Wednesday sold a new 7 billion-euro, 30-year bond that saw the highest-ever demand for an Italian syndicated issue, according to a lead manager.

“Although the record (Spanish) order book is grabbing the headlines, the key detail is that Asian demand has been effectively zero, in striking contrast to the two 10-year SPGB (Spanish government bond) syndications where Asian investors absorbed more than 10%,” said Michael Leister, rates strategist at Commerzbank.

Minutes from the ECB’s December meeting will be published later on Thursday. (Reporting by Dhara Ranasinghe, editing by Larry King)