LONDON: German 10-year Bund yields hit new lows in a broad fall in euro zone borrowing costs on Tuesday as European Central Bank buying helped markets overcome supply pressure in the busiest week of the year in terms of debt sales.
The yield fell 2 bps to as low as 0.135 percent.
The Netherlands sold 2.5 billion euros in five-year bonds on Tuesday. Italy sold 7.5 billion at an auction of three-, seven- and 15-year debt on Monday, and an extra 3.4 billion in a sale of BTP Italia inflation-linked bonds aimed at retail investors that continues on Tuesday and potentially on Wednesday.
Germany plans to sell up to 4 billion euros in 10-year debt on Wednesday, while Spain is scheduled to issue up to 5 billion euros in 2020, 2025 and 2029 bonds on Thursday. France is due to sell up to 10 billion euros on Thursday.
Analysts expect lower-rated countries, which were starved for long-term cash at the height of the debt crisis in 2011 and 2012, to continue to sell as much longer-dated debt as they can.
"There is definitely a strategy from that point of view," said Gianluca Ziglio, executive director of fixed income research at Sunrise Brokers. "When yields are so low you want to lock them for as long as you can."
Ziglio expects countries such as Spain and Italy to keep pushing to extend the life of their debt at least until the end of the European Central Bank's trillion euro asset purchase programme in September 2016.
Spanish and Italian 10-year yields were a tad lower at 1.26 percent and 1.24 percent, respectively, reversing a slight rise early on Tuesday.
The ECB bought much longer-dated debt in Spain and Portugal than in countries such as Germany and the Netherlands in the first month of its QE programme.
Long-dated top-rated debt is harder to find because pension funds and insurers are hanging on to those bonds for regulatory reasons. Peripheral debt markets are dominated by domestic banks, which are more likely to hoard short-term debt.
"It's a historic chance for them - they can refinance themselves at record low levels for 10-15 years," said DZ Bank strategist Daniel Lenz. "The ECB will have to buy those bonds."
A Financial Times report - denied by Athens - that Greece was preparing for a debt default if it did not reach a deal with its creditors by the end of the month - had limited impact on peripheral markets, traders said.
Greek 10-year yields rose 32 bps to 11.81 percent, while two-year yields were up 108 bps at 22.35 percent.
"In general the ability of Greece to produce spillovers is looking very limited," said Jan von Gerich, chief fixed income analyst at Nordea in Helsinki.
"No doubt the ECB is the dominant factor."
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