January 18, 2017 / 9:31 AM / a year ago

Belgium leads euro zone yield rises after record bond sale

* Belgium’s 6 bln euro 10-year bond sale pushes up yields

* Market expects increased debt supply as Italy gears up

* Schatz auction eases pressure on short-dated bonds

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, Jan 18 (Reuters) - Belgium led a broad rise in euro zone bond yields on Wednesday after a record 6 billion euro sale of 10-year bonds the day before fuelled expectations for future supply.

With Italy expected to launch a 15-year syndicated bond in the near future, investors are selling outstanding euro zone government bonds to make space for the new supply, pushing yields higher.

“The size of the Belgium deal shows how the governments themselves view the way in which rates are going to go upwards in the future,” said DZ Bank strategist Daniel Lenz. “Therefore it is reasonable now to come up with large issuance sizes.”

Tuesday’s sale was Belgium’s largest via syndication, in which banks distribute bonds on behalf of the borrower to a range of investors.

Italy’s Treasury said on Tuesday it had hired five banks for its syndicated issue, which will be the first test of market demand for its debt after a credit rating downgrade last week.

On Wednesday euro zone bond yields rose 1-3 basis points across the board, led by Belgium’s 10-year benchmark, which was up 3 bps at 0.66 percent. Italian 10-year yields were up 2 bps to 1.92 percent, a higher rise than equivalents in Spain and Portugal.

The market calmed on Tuesday after UK Prime Minister Theresa May took the edge off Brexit-related concerns by saying the terms of Britain’s divorce from the European Union would be put to a parliamentary vote.

Euro zone yields had fallen sharply in the run-up to May’s speech when it became apparent she would signal a “hard Brexit” that will take Britain out of the EU single market, but they came off lows after her comments.


Supply has also been partly responsible for easing some of the pressure on short-dated bonds, which faced a severe squeeze at the end of 2016 on the back of a shortage of collateral.

Yields on Germany’s two-year bonds, or Schatz, rose 1 bps to minus 0.73 percent on Wednesday, well off their December 2016 record low of minus 0.836 percent.

“The short-end yields are moving to the upside as we expected as some of the ECB (stimulus) measures kick in, and also with some recent supply,” said Lenz.

The German Finance Agency, the federal government’s debt management office, sold 4.029 billion euros in a top-up of its 0.00 percent, 2-year notes, the Bundesbank said on Tuesday. (Reporting by Abhinav Ramnarayan; editing by John Stonestreet)

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