EURO GOVT-Narrow range for Bund as Spain, Portugal yields rise

* Spain sells 2.4 billion euros of 10- and 15-year bonds

* U.S. Treasuries’ earlier losses ease; Bund is flat

* EU summit outcome likely to be “technical,” analyst says

(Changes lead, adds Spanish auction info, updates prices)

By Emily Flitter

LONDON, Dec 16 (BestGrowthStock) – Government debt yields for Spain,
Portugal and Italy rose on Thursday after bidders charged Spain
a high premium for borrowing in the last bond auction of the
year, while Bunds traded in a narrow range with yields little
changed on the day.

Spain sold 2.4 billion euros in 10-year and 15-year bonds,
in an auction traders said went smoothly, though the high yield
demanded by bidders conveyed an enduring anxiety about Spain’s
ability to manage its fiscal affairs. [ID:LDE6BF0Q4]

“The Spanish auction seems to have been taken down pretty
well,” said Nick Stamenkovic, a bond strategist at RIA Capital
Markets in Edinburgh.

“That’s the last supply for this year. The markets are
breathing a sigh of relief that the Spanish supply is out of the
way for this year.”

Traders’ next main focus is the start on Thursday of a two
day meeting of European Union leaders who will try to agree the
next steps in tackling a debt crisis that has seen Greece and
Ireland take international rescue packages and threatens to
spread to Portugal and Spain. [ID:nLDE6BE29I].

“There are significant divisions in the EU,” Stamenkovic
said. “Until the markets see a substantive policy response from
the European authorities they’re going to continue to put
pressure on some of these peripheral countries.”

EU leaders are planning to sign off on a permanent fund to
stabilise struggling euro zone countries. They are also expected
to make private investors shoulder more of the burden of
spiralling sovereign debt yields by taking haircuts on the bonds
they hold in the event of a restructuring. [ID:nLDE6BE1JV]

“All these discussions will probably be more technical than
a big political announcement or a big economic announcement,”
said Patrick Jacq, interest rate strategist at BNP Paribas in

He said the EU meeting was significant to the peripheral
debt markets in the three- to four-year area, where yields would
theoretically ease if a path to stability seemed clear. However,
he said much of the possible impact of the meeting had already
been priced into the market.

Bund prices were tracking U.S. Treasuries, which were
recovering from losses seen during the last New York trading

“The U.S. market is a key driving force,” Jacq said.

“U.S./euro spreads are mainly driven by the tone of the
market in the U.S., especially in the five to 10-year area.”

Investors have been selling Treasuries fairly steadily since
the U.S. government announced a plan to extend a series of tax
cuts. The plan led economists to raise their forecasts for U.S.
growth, but also spurred fears the budget deficit could spin out
of control.

Ten-year U.S. Treasury yields (US10YT=RR: ) hit fresh
seven-month highs on Wednesday in US trading before falling back
and yields in European trading on Thursday were still around 6
basis points higher compared to the previous day’s European
settlement close.

March Bund futures (FGBLc1: ) were 5 ticks lower at 124.18.
Two-year bond yields (DE2YT=TWEB: ) were 1.3 basis points higher
at 1.081 percent, with 10-year yields (DE10YT=TWEB: ) one tenth of
a basis point higher at 3.030 percent.

Graphic on euro zone debt crisis

Spanish 10-year bond yields (ES10YT=TWEB: ) were around 5.55
percent on Wednesday, up around 20 basis points this month.

Traders said there had been some small-scale European
Central Bank bond purchases of Irish and Portuguese debt on
Wednesday, which had helped stabilise the periphery.

A measure of private sector economic activity in Germany
showed acceleration reaching a four-year high on Thursday.

The flash estimate of Markit’s purchasing managers’ index
survey showed a composite measure of the manufacturing and
services sectors rising to 59.7 from 59.0 in November, its
highest since June 2006. [ID:SLAFNE6KI].

(Additional reporting by Kirsten Donovan)

EURO GOVT-Narrow range for Bund as Spain, Portugal yields rise