German yields lifted to 5-week high by US Treasuries, ebbing Italian risk
* German bond yields at five-week high
* Italy budget, Brexit deal optimism knocks safe havens
* Italian bond yields turn positive after falling for six
* Spain takes 18.5 billion euros of orders for 15-year
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
(Updates prices, recasts to reflect rising Bund yields,
upcoming U.S. Treasury auction)
By Dhara Ranasinghe
LONDON, Sept 11 (Reuters) - Bond yields in benchmark euro
zone issuer Germany rose to their highest level in five weeks on
Tuesday, lifted by hopes of fiscal restraint in Italy, signs of
a Brexit deal and higher yields on U.S. Treasury markets.
While demand for safe-haven assets has ebbed in recent days
thanks to positive developments on the Italian and Brexit
fronts, German bonds also felt pressure from 10-year U.S.
Treasury yields which hit a one-month high ahead of a flood of
new debt supply.
The Bund yield rose more than three basis points to a
five-week high at 0.44 percent, while 10-year U.S.
yields rose 3 bps and three-year yields jumped to 2.816 percent,
the highest in more than a decade .
Later on Tuesday, the Treasury will auction over $35 billion
of three-year notes, the highest amount since 2010. In total
$144 billion will be sold this week.
Mizuho strategist Antoine Bouvet said the U.S. market was
"For most of the morning the Bund was holding at 0.425
percent and was struggling to go higher, but the fundamental
reason (for the rise) is there is supply in the U.S., and that
typically that weighs on the market in the days before," Bouvet
Meanwhile, Italy's bond yields too turned positive for the
first time in over a week, having fallen for six straight
sessions previously. Italian bonds were up 1-3 basis points
across the curve, after long-dated yields briefly hit their
lowest level since late July earlier in the session.
Comments from top Italian politicians in recent weeks that
European Union fiscal rules will be respected in the 2019 budget
talks have boosted sentiment towards Italian debt as well as
broader peripheral bond markets in the bloc.
Italian bonds have rallied around 50bp since the end of
August, leading analysts to note that some investors may be
profit taking ahead of the next Italian bond auction.
Italy's Treasury said on Monday it would offer up to 7.75
billion euros ($9 billion) over three BTP bonds at an auction on
Italy's 10-year bond yield rose three bps to 2.77 percent,
having fallen to its lowest in more than six weeks at 2.7
percent earlier in the session.
Shorter-dated Italian yields were up around 0.5 - 2 bps
Spain was also due to sell four billion euros of government
bonds maturing November 2033 via syndication on Tuesday, taking
orders of 18.5 billion euros for the deal.
Rabobank strategist Richard McGuire said the well-supported
deal was evidence not only of the broader supportive bid for
peripheral bonds, but also the fact that Spain has decoupled
Regarding the broader demand for risk which has helped lift
Bund yields, analysts pointed to comments on Monday from EU
Brexit negotiator Michel Barnier that a divorce deal with
Britain could be agreed in six to eight weeks if negotiators
were realistic in their demands.
That news has lifted sterling as investors unwind the risk
premium associated with Brexit talks, in turn undermining
British gilt yields rose to more than one-month highs
earlier in the session.
"An easing of risks is weighing on German bonds," said KBC
rates strategist Mathias van der Jeugt. "If you look at
yesterday's driver, you see weakness in Bunds followed strength
in Italian bonds and a second down leg in the German market
followed the Barnier comments."
Analysts said Thursday's ECB meeting should temper bond
market moves in general.
The ECB is expected to firm up its plans to halve monthly
asset purchases to 15 billion euros ($17.4 billion) come October
(Reporting by Dhara Ranasinghe; Additional reporting by
Editing by Keith Weir/Ed Osmond)
First Published: 2018-09-11 10:07:08
Updated 2018-09-11 17:33:51
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