* Germany sells five-year bonds, demand lacklustre
* Japanese investors sell French bonds, buy German debt
* German 10/2-yr bond yield gap widest since July 2014
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, March 8 German government bond yields
rose on Wednesday, pushed higher after a sale of five-year paper
revealed lacklustre demand among investors.
Germany, the euro zone's benchmark bond issuer, sold about
3.16 billion euros of bonds maturing in April 2022. The auction
attracted 3.4 billion euros worth of bids, less than the 4
billion euros offered.
"It was a poor auction this time around and you see that in
the market reaction," said Commerzbank rates strategist David
Schnautz. "We know the ECB is keen on buying much shorter-dated
debt so that may have tipped the balance against five-year
Germany's five-year bond yield was up 3 basis points at
at minus 0.53 percent.
In contrast, 2-year yields dipped to a one-week low of minus
0.89 percent, pushing the gap with 10-year bond
yields out to around 123 bps -- the widest since
A scarcity of eligible bonds for the European Central Bank's
monetary stimulus scheme means the ECB is buying more bonds with
a shorter-dated maturity, putting downward pressure on bond
yields at the very short end of the yield curve.
According to Mizuho calculations based on ECB data released
on Monday, the average maturity of German bonds bought for the
ECB's bond-buying programme fell to three years in February from
eight years in January and 10 years in December.
Despite the weak auction results, analysts said they
expected demand for German government bonds to remain strong.
Worries about the euro zone's future as elections in the
Netherlands and France loom, demand for top-rated bonds for use
as collateral in funding markets and ECB bond buying have all
underpinned demand for German bonds in recent weeks.
Data released by Japan's Ministry of Finance on Wednesday
showed Japanese investors were net buyers of about 5.4 billion
euros of German sovereign bonds in January, the largest amount
since October 2014.
At the same time, Japanese investors sold French bonds for
the third month in a row, the longest such spell since mid-2011.
While worries about French election risks have ebbed in the
past week, the popularity of anti-euro far right presidential
candidate Marine Le Pen has alarmed investors, who have
increasingly switched out of French debt for safer German paper.
"There are a number of supportive factors such as euro zone
break-up risk, which is increasing demand for shorter-dated
German bonds," said Antoine Bouvet, rates strategist at Mizuho.
Christian Lenk, a rates strategist at DZ Bank, added that
the investor data from Japan may help explain weakness in French
bonds on Wednesday.
France's 10-year bond yield rose to a two-week high at
around 1.04 percent, pushing the gap over German
peers to around 68 bps -- its widest in a week.
Portugal, meanwhile, sold 1.11 billion euros of three and
nine-year bonds, while the focus was expected to turn to Britain
which releases its budget later on Wednesday.
(Reporting by Dhara Ranasinghe; Editing by Angus MacSwan and