Euro zone bond yields hold gains as Austria 100-year leads supply glut

LONDON: Euro zone government bond yields were close to the highs hit on Tuesday after Austria said it was to sell 3.5 billion euros of 100-year debt and other borrowers in the bloc lined up bond sales.

Bond yields tend to rise when there's a lot of supply in the pipeline and this week is particularly crowded as government and government-backed borrowers rush to access the market before the next European Central Bank meeting.

"I think everyone expects the ECB is going to announce tapering in October so they are trying to get their deals done now," said ING strategist Martin van Vliet.

"But the sell off in long-dated bonds really accelerated yesterday afternoon after Austria announced the deal size," he said.

Austria on Tuesday became the first euro zone country to sell 100-year bonds publicly via a syndication, and the 3.5 billion euro deal size dwarfed previous efforts.

Belgium and Ireland have sold "Century bonds" in the past, but only through a private placement, and for 50-100 million euros each.

On Wednesday, most euro zone government bond yields hovered around the highs hit on Tuesday.

The yield on Germany's 10-year government bond, the benchmark for the region, was roughly unchanged at 0.39 percent  after recording its biggest daily rise since early July on Tuesday. It is now well over the 0.286 percent low hit as recently as Friday.

The Netherlands sold 10 billion euros of bonds via auctions on Tuesday. Later on Wednesday Germany is set to sell 3 billion euros of 10-year bonds and Italy is to sell up to 8 billion euros of bonds of various tenors.

European Investment Bank is to sell 3 billion euros of bond maturing in December 2023, according to a banker working on the deal.

"The high-duration supply is causing indigestion in euro rates markets with weaker euro and firmer risk sentiment adding to the downside in Bunds," analysts at Commerzbank said in a note.

Lingering concerns about potential tapering in the European Central Bank's bond-buying stimulus also cast a shadow over bond markets after a report on Friday that rate-setters agreed last week to start reducing the bond purchases, with a decision likely at their next policy meeting on Oct. 26.

The spread between Italian and German 10-year borrowing costs, a key indicator of risk sentiment, widened a touch to 163 basis points.