January 8, 2013 / 12:45 PM / in 5 years

EURO GOVT-Wave of euro zone bond supply draws solid demand

* ‘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

LONDON, Jan 8 (Reuters) - Investors snapped up a wave of new euro zone sovereign bonds from across the credit spectrum on Tuesday, including Ireland’s latest step back into long-term debt issuance.

German bond prices were marginally higher on the day, stabilising after a steep selloff last week and there was plenty of demand for low-risk bonds at auctions by the Netherlands and Austria.

“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.

Cashing in on the issuance rush, Belgium announced that it would sell a new 10-year bond via syndication rather than holding its planned late-January auctions.

Bund futures were 10 ticks higher on the day at 143.06 while the price of bonds issued by the region’s lower-rated states such as Italy and Spain were also slightly higher.

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 to trade flat at a yield of 3.36 percent.

Elsewhere in the periphery, Spanish and Italian 10-year benchmark yields were lower on the day, down 4 basis points at 5.08 percent and 7 bps lower at 4.28 percent respectively.


Spanish yields fell even as Madrid unveiled its sizeable 121 bln 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 is one factor, alongside sliding credit ratings and worsening economic performance, expected to determine whether the country 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.

“In combination with last week’s announcement of the new two-year line it shows that they’re not completely out of the woods yet and some caution is warranted.”

Spain will kick off its funding campaign with the launch of a new two-year bond on Thursday, with some analysts looking at the choice to sell short-term debt as a safe option given the market’s current positive mood.

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