The yields on lower-rated euro zone bonds rose on Tuesday, as selling pressure ahead of large new debt issues picked up after a European Central Bank board member talked down the prospect of a broad-based asset-buying programme.
The ECB's Sabine Lautenschlaeger, a former Bundesbank vice president, said an asset-buying programme should only be implemented as an emergency measure if there was an immediate risk of deflation.
Her comments show the strength of opposition in some quarters at the ECB to such a policy. Traders said they led to some selling pressure in bond markets although the impact was limited as the Bundesbank is known for its reluctance to pursue quantitative easing (QE).
"These comments are not helpful for the periphery," said Orlando Green, a fixed income strategist at Credit Agricole.
"There has been some disappointment in the market that the ECB is still playing more of a passive role with the TLTROs (new four-year loans) as they depend on banks appetite, whereas with QE it would be more active."
Spanish <ES10YT=TWEB> 10-year yields rose 4 basis points to 2.72 percent while Italian equivalents <IT10YT=TWEB> were 3 bps higher at 2.84 percent, respectively. Portuguese and Greek yields also rose.
Peripheral bonds have benefited from speculation that the ECB may be forced to fight very low inflation by printing money at some point.
But other ECB actions continue to support the market. The central bank cut all its main interest rates last month and promised up to 1 trillion euros in cheap, long-term loans to euro zone banks.
Italy and potentially Greece plan to issue bonds later in the week and traders said they were feeling some selling pressure from investors who want to make room on their books for the new paper.
Some analysts said yields should start falling again soon after the sales. German, Austrian and Dutch yields did just that after their debt auctions on Tuesday. Core bonds were also helped by a softer tone in equity markets, lifting German Bund futures to a new contract high of 147.40, up 44 ticks on the day.
Earlier, Germany sold 1 billion euros of 2018 inflation-linked bonds, Austria sold 1 billion of 10- and 30-year bonds, while the Netherlands raised 2 billion euros of 10-year bonds.
"The overriding theme is probably still the hunt for yield which should resume soon after supply," said Rainer Guntermann, rate strategist at Commerzbank.
Source: Reuters
