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UPDATE 2-Euro zone bond yields dip, Italy kicks off heavy supply week
November 13, 2017 / 12:05 PM / 5 days ago

UPDATE 2-Euro zone bond yields dip, Italy kicks off heavy supply week

* German bond yields hit 2-week high, reverse early fall

* Italian bond yields dip but near recent highs

* Italy kicks off heavy supply week with 6 bln euro bond sale

* Over 30 billion euros of supply due this week

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates throughout)

By Abhinav Ramnarayan and Dhara Ranasinghe

LONDON, Nov 13 (Reuters) - Most euro zone government bond yields dipped on Monday but struggled to move too far from highs hit last week, with markets absorbing the first chunk of hefty debt supply scheduled for this week.

Italy, one of the euro zone’s biggest bond issuers, sold 6 billion euros of government debt.

That was at top end of a targeted range, suggesting appetite for regional bonds remains firm despite a sharp sell-off last week.

But bond markets from Germany to Italy struggled to make significant headway in one of the busiest weeks this year for supply, with more than 30 billion euros of debt to be sold.

New supply often puts upward pressure on bond yields, pushing prices down.

Italy’s 10-year bond yield was 1 basis point lower at around 1.83 percent, trimming earlier falls and holding near 1-1/2 week highs hit on Friday.

By late afternoon trade in Europe, German Bund yields had reversed their earlier falls, touching a two-week high at around 0.42 percent.

“Bonds could be somewhat weak during these auctions,” said DZ Bank analyst Sebastian Fellechner.

Euro zone bond yields had risen sharply on Thursday and Friday, triggered by a large seller of Bund futures on Thursday.

That curbed a rally which began after the European Central Bank’s October policy meeting, when the central bank extended its bond-buying scheme until at least September 2018.

DZ Bank’s Fellechner said he believed that in the long term southern European bonds will outperform their better-rated counterparts because of the benign environment.

“Overall, it’s a ‘Goldilocks’ environment for peripheral spreads,” he said, pointing to fading political concerns and an extension of ECB stimulus.

Belgian 10-year bond yields outperformed, dropping 5 bps to 0.60 percent, after the country’s debt management office cancelled a planned auction on Nov. 20.

Most other euro zone bond yields were little changed to slightly lower on the day. Analysts said they suspected many investors had also moved to the sidelines ahead of a number of key central banker speakers this week.

ECB chief Mario Draghi, U.S. Federal Reserve Chair Janet Yellen, Bank of Japan Governor Haruhiko Kuroda and Bank of England head Mark Carney will form an all-star panel on Tuesday at an ECB-hosted conference in Frankfurt.

Reporting by Abhinav Ramnarayan and Dhara Ranasinghe; editing by Mark Heinrich

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