January 8, 2013 / 5:20 PM / 5 years ago

EURO GOVT-Euro zone debt broadly higher as supply easily absorbed

* 'Core' issuers Austria, Netherlands easily sell bonds
    * Ireland takes big step closer to funding independence
    * Spain announces tough 121 bln euro 2013 bond funding plan

    By William James and Ana Nicolaci da Costa
    LONDON, Jan 8 (Reuters) - Euro zone government bonds were
broadly higher on Tuesday as investors snapped up a wave of new
bonds from across the credit spectrum, including Ireland's
latest step back into long-term debt issuance.
    German bond prices rose after a steep selloff last week and
Dutch and Austrian debt prices firmed after respective auctions
for the two countries' low-risk bonds drew plenty of demand.
    "The Dutch issue was taken down very well and the same for
Austria, and now we see other issuers taking advantage of the
tailwinds to go forth with their issuance," said Michael
Leister, senior strategist at Commerzbank in London.
   Making the most of the appetite, Belgium announced that it
would sell a new 10-year bond via syndication rather than
holding its planned late-January auctions. 
   German Bund futures were 37 ticks higher on the day
at 143.43 while the price of bonds issued by the region's
lower-rated states such as Italy and Spain also rose.
    Market speculation of an imminent French rating downgrade
underpinned the Bund earlier, but the contract held onto gains
even after French officials said the rumours were unfounded.
    The day's price action highlights markets are keen to both
buy up ultra-low risk assets at cheaper levels and invest in
riskier assets to secure a higher rate of return - a reflection
of the euro zone's mixed outlook for 2013.
    Those who believe the worst of the region's three-year debt
crisis has passed could take heart from the strong demand for
Ireland's latest bond issue - a 2.5 billion euro syndicated tap
of its 2017 bond, which drew orders worth over 7 billion euros.
    Ireland looks like becoming the first sovereign to
successfully exit a euro zone bailout programme and is expected
to issue around 10 billion euros of debt this year.
   "It was an excellent deal for Ireland ... There was a decent
spread of demand across geographies. We've seen a few accounts
getting back involved after the two-and-a-half year hiatus from
the (Irish debt agency)," a trader said.
   Irish five-year yields initially rose ahead of
books opening on the deal but the strong demand saw the bonds
recover early losses, pushing yields 10 bps lower to 3.25
    Elsewhere in the periphery, Spanish and Italian 10-year
benchmark yields were lower on the day, down 3 bps at 5.09
percent and 6 bps lower at 4.29 percent
    Spanish yields fell even as Madrid unveiled a sizeable 121
billion euro funding target for the year - a 7.6 percent
increase on the amount it raised in 2012 that highlights the
country's economic plight. 
    The weight of issuance, alongside sliding credit ratings and
worsening economic performance, will be a factor that is likely
to determine whether Spain can survive 2013 without turning to
international lenders for assistance.
    "The number is on the high side and it's a bit of an
eyecatcher given the stark increase yet again," said
Commerzbank's Leister.
    Spain will hold its first debt auction of the year on
Thursday when it aims to issue between 4 billion euros ($5.22
billion) and 5 billion euros of paper.
    Before then, Germany is due to sell 5 billion euros of
five-year debt on Wednesday in a sale analysts expect to go
well, given the still fragile economic backdrop. 
    "Given the better tone for core bonds in the past few days,
it will be a positive auction. People will be attracted to
higher yields compared to the levels of two months ago,"
Alessandro Giansanti, senior rates strategy at ING, said.
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