Most euro zone bond yields down with new syndicated debt deals in spotlight
Most euro zone government bond yields were little changed on Tuesday, with new syndicated debt deals from Greece, Belgium and Austria in the spotlight as key tests of investor demand for fixed income. Caution ahead of votes later in the day in the UK parliament on changes to Prime Minister Theresa May's Brexit deal, looming high-level talks between the United States and China on trade and Wednesday's Federal Reserve meeting all supported the bond market.
There was some upward pull on yields from new supply -- Belgium took markets by surprise on Monday by announcing plans to sell a 30-year bond via a syndicate of banks. Germany is scheduled to sell five billion euros of two-year bonds on Tuesday. Weaker economic conditions have boosted expectations that record low interest rates will remain in place for some time. This has encouraged governments to launch new bond deals and take advantage of renewed investor appetite for fixed income. After hefty falls in the past month, the upcoming sales were viewed as an important gauge of sentiment.
"There are two factors at play - one is traditional front-loading of supply by issuers in the first months of the year," said Mathias van der Jeugt, rates strategist at KBC. "Second, is that issuers are profiting from the global growth worries and stock market turmoil that has pushed yields lower. Also, the ECB downgraded its growth forecasts last week which opens the door for easy monetary policy for longer." Austria said on Monday it will launch a new 10-year bond via syndication while Greece announced a new five-year issue - its first syndicated deal in almost a year.
A string of recent successful syndicated bond deals include long-dated sales from Spain and Italy this month that met with record investor demand. In early Tuesday trade, most 10-year bond yields in the euro area were down just 0.5 to 1 basis points on the day . Greek five-year bond yields rose three bps to 3.07 percent ahead of the anticipated new supply.
Friday's vote in the Greek parliament on a name change for Macedonia has removed a cloud of political uncertainty and paved the way for a new bond deal. Pooja Kumra, European rates strategist at TD Securities, said she expected a minimum of 3 billion euros of the new Greek five-year bond to be sold. Greece, which emerged in August from its third international bailout since 2010, has tested market appetite under the watch of its international lenders in recent years. It sold 3 billion euros of seven-year bonds nearly a year ago.
(With inputs from agencies.)
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