EURO GOVT-Spain, Portugal yields inch higher after auction

* 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

(Adds quote, changes lead, updates prices)

By Emily Flitter

LONDON, Dec 16 (BestGrowthStock) – Government debt yields for Spain,
Portugal and Italy edged higher on Thursday after bidders
charged Spain a high premium for borrowing in the last bond
auction of the year.

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]

Yields for the countries now at the centre of concern in
Europe’s debt crisis rose on the tender results, but dealers
said there was quickly interest to buy from fund investors.

“Just after the auction, which is quite common for Spanish
auctions, we had a widening of the yield from six to eight basis
points,” said a Paris-based trader at a major investment bank.

“Later, we had some interest coming out of real money guys
in the long end of the Spanish curve.”

More than 70 percent of bidders in the auction were
non-resident investors, a source told Reuters. [ID:MDT009591]

Overall, trading volumes were light, dealers said.

The auction’s average yields — 5.446 percent for the
10-year bond — were between 80 and 140 basis points higher than
in previous sales in October and November.

Spanish 10-year bond yields (ES10YT=TWEB: ) were 4.7 basis
points higher at 5.535 percent on Wednesday, up around 20 basis
points this month.

Bund prices were little changed on the day, tracking U.S.
Treasuries, which were recovering from previous losses.


Graphic on euro zone debt crisis



A two day meeting of European Union leaders starting
Thursday will try to agree on next steps in tackling a debt
crisis that has seen Greece and Ireland take international aid
and threatens to spread to Portugal and Spain. [ID:nLDE6BE29I].

The summit’s agenda does not leave much room for major

“There are significant divisions in the EU,” said Nick
Stamenkovic, bond strategist at RIA Capital Markets in
Edinburgh. “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.

March Bund futures (FGBLc1: ) were unchanged at 124.23.
Two-year bond yields (DE2YT=TWEB: ) were six tenths of a basis
point higher at 1.074 percent, with 10-year yields (DE10YT=TWEB: )
three tenths of a basis point higher at 3.033 percent.

“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
Washington announced plans to extend a series of tax cuts,
leading economists to raise their forecasts for U.S. growth, but
also spurring fears over the budget deficit.

(Additional reporting by Kirsten Donovan)

EURO GOVT-Spain, Portugal yields inch higher after auction