UPDATE 3-Spanish yields hit six-month lows after record demand at 10-year bond sale
Euro zone bond yields generally drifted off their lows after news that German investor morale brightened unexpectedly in January, although worries over world economic growth, trade tension and a Brexit impasse continued to underpin the market. But it was the moves in peripheral bond markets that stood out. Spain's 10-year bond yields tumbled over three basis points at 1.338 percent, its lowest level in almost six months, before settling at around 1.345 percent.
The positive sentiment towards Spain spilled over to Portugal, where 10-year bond yields fell to 1.576 percent -- their lowest level since March 2015. Though the yield climbed back up to 1.605 percent by the end of the session, it was still down a basis point on the day. Spain attracted a record 47 billion euros of orders for its new 10-year syndicated bond issue, allowing the country's debt agency to set a size of 10 billion euros.
"Bond spreads have widened to a decent degree recently," said Seamus Mac Gorain, fixed income portfolio manager at JPMorgan Asset Management. "Because of this widening of spreads, people have felt there were attractive valuations coming into January, which is why all of these new bond issues have been well received."
For sure, the Spanish deal is the latest in a string of solid government bond sales sold via a syndication, easing concerns about an absence of buyers for euro zone debt after the European Central Bank ended its bond-buying stimulus scheme last month. Italy last week raised 10 billion euros in its biggest syndicated bond sale.
Outside Spain, euro zone bond yields were down 1-2 bps. Germany's 10-year bond yield was last down 2.5 bps at 0.24 percent, holding below Friday's one-month high close to 0.28 percent.
The mood among German investors improved for the third consecutive month in January, a ZEW research institute survey showed, suggesting that the growth prospects of Europe's largest economy are slowly brightening. Markets are increasingly convinced that stuttering growth at home and abroad means the European Central Bank will maintain a dovish stance when it meets on Thursday.
Data on Monday showing China's economic growth slowed to a 28-year low in 2018 were followed by the International Monetary Fund's trimming its 2019 and 2020 world growth forecasts. Brexit uncertainty and concern about the U.S./China trade war after U.S. President Donald Trump called on China to seek a "real deal" added to the risk-off sentiment and boosted safe-haven debt on Tuesday.
Francois Savary, CIO at wealth manager Prime Partners, still expects the ECB to raise rates by the end of the year, despite signs that doubts are growing among policymakers. "Clearly the ECB is asking itself if they really need to proceed with an interest rate hike," Savary said. "(ECB President Mario) Draghi has been clear that he wants to be more flexible and more slow in the way they assess monetary policy."
Euro zone money markets price roughly a 50 percent chance the ECB will raise its deposit rate by 10 basis points by the end of this year. It is now minus 0.40 percent. (Reporting by Dhara Ranasinghe, Editing by Catherine Evans and Ed Osmond)
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)
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