Bonds News

UPDATE 2-EU sees over 10-fold demand for second SURE issuance; German yields rise

* EU receives 175 billion euros of demand for second SURE issuance

* Markets continue focusing on Pfizer vaccine news

* German 10-year yields touch new one-month high

* Euro zone periphery govt bond yields (Updates demand for EU bonds and yields)

AMSTERDAM, Nov 10 (Reuters) - The European Union saw over 10-fold demand for the second bond issuance backing its SURE unemployment scheme on Tuesday, while German yields touched a one-month high with investors still digesting news of a vaccine against COVID-19.

The EU will raise eight billion euros from the sale of a five-year bond, demand for which reached more than 105 billion euros, and six billion euros from a 30-year bond, which saw demand of over 70 billion euros according to a lead manager memo seen by Reuters.

Both bonds are “social” bonds, with the entire SURE programme now being funded in this format.

The deal follows the first issuance to fund the scheme in early October, which raised 17 billion euros and got 233 billion euros of orders, the highest level for any bond sale ever.

Although the EU would pay more than it would have last week, Antoine Bouvet, senior rates strategist at ING in London, said it managed to bring a “very large size out given arguably much more challenging market conditions because of the sell-off we had yesterday.”

“You could have expected investors to get a bit twitchy.”

News that Pfizer’s experimental COVID-19 vaccine is more than 90% effective based on initial trial results led to a huge turnaround in markets on Monday. Hopes that the vaccine will be a key step towards economic recovery hit safe-haven bonds hard on Monday.

Markets continued to digest the news on Tuesday. After seeing its biggest daily jump since March on Monday, Germany’s 10-year yield touched a one-month high at -0.473% before retreating slightly to -0.477% at 1551 GMT.

News that the European Parliament and EU governments’ negotiators agreed on the details of the EU’s 2021-2027 budget, a crucial step for the activation of the bloc’s 1.8 trillion euro recovery package, had little impact on government bonds.

A key gauge of long-term euro zone inflation expectations rose to their highest since Sept. 16 at over 1.21% then ticked down to 1.20%.

The yield on Italy’s 10-year benchmark, which also jumped on the vaccine news, crept higher at 0.74%.

“There is a range of views at the moment, with the key question being whether this a major turning point that gets rates trending higher, or does the economic damage done keep us in a (broad) range for a lot longer,” said Sabrina Jacobs, fixed income specialist at Insight Investment in London.

She said the firm stopped out of long-duration positions in European government bonds on Monday out of caution.

“Most portfolio managers are tending towards the latter; i.e., not expecting that the narrative of rates not going anywhere for three-four years and support from quantitative easing etc. changes.” (Reporting by Yoruk Bahceli and Julien Ponthus; editing by Larry King, William Maclean)