LONDON: Ten-year Bund yields rose above 1 percent on Wednesday before an auction of new benchmark German debt expected to lure investors back into the market after a sell-off triggered by fears of faster US interest rate hikes.
A study by the San Francisco Federal Reserve released this week showed investors underestimated the speed at which the US central bank may hike interest rates, triggering a rise in yields on both sides of the Atlantic.
But the European Central Bank's loose monetary policy and the bleak outlook for growth and inflation in the euro zone has continued to temper selling pressure in Bunds, and the sale of up to 5 billion euros in new 10-year paper is seen as a good opportunity for investors to rebuild their positions.
"We've seen a sell-off in US Treasuries and Bunds on fears that the Fed may raise rates sooner than expected," said Nick Stamenkovic, bond strategist at RIA Capital Markets.
"But the rise in yields should encourage investors to buy the Bunds at the auction, particularly given the poor economic picture we have at this juncture."
Stamenkovic said the sale should see higher demand than last week's barely covered auction of five-year German debt, which generated average yields of 0.25 percent.
Ten-year Bund yields were 1 basis point higher at 1.01 percent, having risen from a record low of 0.87 percent at the end of August.
Other euro zone markets were also little changed, with the Spanish bond market calmer after a two-day selloff in which traders pointed to worries that a move for independence in Scotland may inspire a similar separatist drive in Catalonia.
British Prime Minister David Cameron implored Scots on Wednesday to shun independence to keep the United Kingdom "family" intact as he scrambled to stem a steep rise in secessionist support ahead of the Sept. 18 vote.
Spanish 10-year yields were flat at 2.20 percent, with traders saying some investors were willing to use the recent sell-off as an opportunity to add to bets that the ECB's stance will keep yields depressed.
Still, "the noise surrounding next week's Scottish independence vote and the prospect for next week's bond auctions render Spanish government bonds vulnerable near-term," Commerzbank rate strategists said in a note.
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