Euro zone bond yields edge up before first French, Spanish auctions of 2018

LONDON: Borrowing costs in the euro area crept higher on Thursday as investors readied for new bond supply from France and Spain in what is traditionally one of the busiest issuance months of the year.

In their first auctions of 2018, France plans to sell up to 9.5 billion euros of long-dated bonds and Spain up to 5 billion euros of medium and long-term debt.

Investors often pull down bond prices, pushing up yields, ahead of an auction to make way for new supply.

Bond yields across the single currency bloc were up 1-2 basis points in early trade.

With new cash being put back to work at the start of the year, analysts expected the new supply to be easily absorbed by markets.

Ireland raised 4 billion euros on Wednesday with a syndicated 10-year bond that covered around a quarter of its 2018 issuance target just three days into the year. It received over 14 billion euros worth of orders, lead bankers for the deal said.

Yields on French and Spanish 10-year bonds were around 1 basis point higher. In Germany, the bloc's benchmark bond issuer, 10-year bond yields were up 1.5 bps at 0.46 percent and holding within sight of recent two-month highs.

"There could be some slight upward pressure on bond yields from the auctions but I don't see any lasting impact," said DZ Bank rates strategist Daniel Lenz.

Analysts said trading volumes had been slightly lower on Wednesday as sweeping new financial rules, known as the Markets in Financial Instruments Directive II, came into force.

But they added that the strong Irish sale had cheered investors, providing an incentive to push yields down.

Minutes from the Federal Reserve's December meeting released late on Wednesday showed Fed policymakers see future rate rises guided by inflation and fiscal stimulus.

"We think the discussion at the Fed indicates little opposition to raising rates in March and to pressing ahead with balance sheet reduction thanks to easy financial conditions," analysts at Mizuho said in a note.