RTRS: EURO GOVT-Bunds lower; market braces for Spanish auction
(Reuters) - German government bonds opened lower on Wednesday with equities buoyed by robust company earnings, while the market braced for a Spanish bond auction seen as a key test of sentiment on the euro zone periphery.
Spain will issue up to 3.5 billion euros of 10- and 13-year paper after yields for the euro zone states struggling with high debt jumped this week on the back of increasing speculation Greece will move to restructure its debt.
Analysts, however, expect the auction to go smoothly.
"We expect healthy demand at the auction...the relatively small amount sold coupled with the absence of competitive offer from periphery and on the long end this week should be two supportive factors," said UniCredit rate strategist Chiara Cremonesi.
"However...there is the risk that demand is somewhat weaker than at the previous auctions and that the rise in the cost of funding brings back contagion fears."
Ten-year Spanish bond yields ES10YT=TWEB have risen to around 5.55 percent since late last week, just 20 basis points shy of the euro lifetime high, generating concern that the country was being dragged back into the crosshairs of investors looking for the next candidate for an international bailout.
June Bund futures FGBLc1 were 20 ticks lower at 121.95. Two-year bond yields DE2YT=TWEB were 2.5 bps higher at 1.819 percent, with 10-year yields DE10YT=TWEB up a similar amount at 3.298 percent, but still around 20 bps lower than a week ago when the market failed to break through 3.5 percent.
Investors seeking a safer haven in the crisis should help Germany sell around 6 billion euros of a new 5-year bond. The auction is expected to go well with the five-year area of the curve still cheap versus the 2- and 10-year areas despite outperforming over the last week and a half. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on German 5-year performance versus 2- and 10-year link.reuters.com/zex98r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
European equities .FTEU3 were set to rally as a raft of strong results from bellwethers such as Intel (INTC.O) fuelled optimism for Europe's corporate earnings season.
