LONDON: Spain's government bond yields were set for their biggest daily fall in almost two months on Thursday, after the country successfully navigated its first debt sale of the year.
Most euro zone bond yields turned lower after Spain sold 4.6 billion euros worth of medium and long-term debt, towards the top end of the targeted range.
France, also holding its first debt sale of the year, sold just over 8 billion euros of long-dated debt although that was at the bottom of a range targeted by the country's debt agency.
January is traditionally one of the busiest months of the year for debt issuance in the single-currency bloc and analysts said there had been some cheapening of bond prices ahead of the sales.
"If you look at the Spanish auction it did quite well," said Martin van Vliet, senior rates strategist at ING.
"The story I hear is that there is money to be allocated into the bond market at the start of the year, so that's what we're seeing."
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.
Bond yields across the single currency bloc were flat to 6 bps lower on Thursday, having traded 1-2 basis points higher in early trade.
The periphery led the falls, with Spain's 10-year bond yield down 5 bps at 1.55 percent and set for its biggest one-day fall since early November.
That pushed the gap over German Bund yields to around 109 bps, its tightest in almost a week.
The gains in Spain's bond markets spilled over to its peripheral peers, with Portugal's 10-year bond yield down 6 bps at 1.94 percent.
In Germany, the bloc's benchmark bond issuer, 10-year bond yields were steady at 0.45 percent and holding within sight of recent two-month highs.
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.
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