January 6, 2012 / 9:55 AM / 8 years ago

EURO GOVT-Italian, Spanish yields rise before supply next week

* Italian, Spanish bonds under pressure before debt sales
    * Concerns over euro zone seen overshadowing U.S. data
    * Demand seen for short-dated Italian, Spanish bonds

    By Ana Nicolaci da Costa	
    LONDON, Jan 6 (Reuters) - Italian and Spanish
government bond yields rose on Friday and are expected to remain
elevated as debt from the two countries on the frontline of the
euro zone crisis comes under pressure before auctions next week.	
    Market players cashed in on German bonds before data
expected to show an improvement in key U.S. payrolls but any
more good news out of the United States was likely to be
overshadowed by ongoing doubts about the euro zone's ability to
overcome its deep-seated crisis.	
    Renewed worries about Greece's ability to meet debt
repayments, Spain's public finances and Austrian banks' exposure
to struggling Hungary should limit any sell-off in safe-haven
German debt, analysts said.	
    "There are rising concerns in Europe about Greece, the
budget deficit in Spain ... so clearly the environment remains
favorable for bid for safety, so the Bund will continue to
outperform (and) spreads are still under widening pressure,"
Patrick Jacq, rate strategist at BNP Paribas said.	
    "I would say that whatever U.S. data (emerges) this
afternoon, the risk will continue to be a key driving force."	
    Benchmark Italian 10-year government bond yields
 rose 3.8 basis points to 7.2 percent -- borrowing
levels perceived to be unsustainable over the long-term. Five
year yields were up 8.3 bps at 6.31 percent.	
    Spanish 10-year government bond yields rose
4.1 bps to 5.72 percent, with the five-year yield surging 12.6
bps to 4.89 percent. The European Central Bank intervened in
those markets, according to a trader.	
    "I will stick to my view that things are going to blow up
(in the euro zone)," he added.	
    Spain is due to issue two bonds maturing in 2016 and a new
bond maturing in 2015 next week. Italy is
expected to sell 3-, 5- and 15- year paper also next week,
according to Barclays in a research note.	
    Jacq said the short-dated maturity of some of those bonds as
well as the excess liquidity in the euro zone financial system
following a European Central Bank funding injection in December
would provide a favorable backdrop for the sales.	
    Concerns over the euro zone should limit any sell-off in
German Bunds, analysts added.	
    The Bund future fell 18 ticks on the day to 138.61,
having rallied 70 ticks in the previous session.	
    "Despite yesterday's improvement, buying interest in Bunds
has repeatedly stalled above 139.00 since September," Pia First
said in research note.  	
    Nonfarm payrolls are expected to have risen 150,000 last
month, according to a Reuters survey, after increasing 120,000
in November.	
    That should cement a view that U.S. economic growth
accelerated in the fourth quarter, but the economy would need
even faster job growth over a sustained period to make a
noticeable dent in the ranks of the millions of Americans who
remain either out of work or underemployed.. 	
    "Maybe payrolls is going to be alright but I think we are
still looking to buy dips," the trader said.
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