LONDON: Spanish bond yields headed down on Thursday before the country's 2015 debt sales, which is expected to get off to a solid start as investors bet the European Central Bank will soon announce new monetary stimulus.
Yields on bonds from the euro zone periphery rose from record lows this week, which may also attract investors hoping to maximise returns.
A grab for yield drove most euro zone bond yields to record lows at the start of the year. It is accelerating as bets firm that the ECB will open a programme of government bond purchases -- so-called quantitative easing -- as soon as its Jan. 22 policy meeting.
That helped Ireland to sell bonds at record low rates on Wednesday, shielding it from the effects of a selloff in Greek bonds. Investors were worried that Greece may quit the euro zone after a Jan. 25 election that could bring the anti-austerity Syriza party to power.
Spain aims to sell up to 5 billion euros of 2020, 2028 and 2037 bonds later in the day as it begins its 2015 funding programme. Spanish 10-year yields were down 2 basis points at 1.70 percent before the auction, having fallen to a record low of 1.495 percent on Friday.
"Overall, the Spanish auctions should clear reasonably well and we think that after the auction there should be some room for peripherals to stabilise and recover after this quite decent pressure and bout of volatility we've been seeing over the past sessions," said Commerzbank strategist Michael Leister.
Italian and Portuguese yields also on expectations ECB bond purchases were imminent, after data on Wednesday showed euro zone prices fell for the first time in 2009. A slump in German industrial orders in November reinforced QE bets.
Portuguese 10-year yields were down 6 bps at 2.67 percent . Italian equivalents were 2 bps lower at 1.90 percent.
The selloff in Greek bonds eased after German Chancellor Angela Merkel played down the chances of a Greek exit from the euro zone, although she made clear she expected Athens to stick to the terms of its bailouts.
Greek 10-year yields were down 32 bps at 10.41 percent, after rising more than 1 percentage point on Wednesday. A newspaper reported at the weekend that Berlin was ready to accept "Grexit" if Athens failed to meet its EU/IMF aid commitments.
The leader of Syriza, Alexis Tsipras, has pledged to reverse reforms and secure debt forgiveness from Greece's partners if he wins the election. Syriza holds a narrow lead over the New Democracy party of Prime Minister Antonis Samaras.
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