LONDON: Euro zone bond yields rose on Monday as Belgium kicked off a week of long-dated bond sales that could dampen a recent rally born out of expectations for more European Central Bank easing.
Belgium is the first of six euro zone sovereigns to sell debt this week for a combined total of about 19 billion euros. Yields tend to rise ahead of debt sales as investors make room in their portfolios for the new supply.
Meanwhile, euro zone business growth accelerated to a four-year high in November, unsettling some investors banking on ECB monetary stimulus next month, while a U.S. central bank meeting on Monday also fed speculation that it may raise the rate it charges commercial banks for emergency loans.
"Adding to our cautiousness is this week's heavy long-end core supply where dealers could use market weaknesses to extract concession ahead of the auctions," Mizuho rates strategist Antoine Bouvet said.
German 10-year yields rose 2 basis points (bps) to 0.50 percent, coming off a three-week low of 0.47 percent last week.
Yields have fallen more than 20 bps over the last fortnight as investors have begun to expect an expansion of the ECB's bond-buying scheme and money markets have moved to fully price in a deposit rate cut.
All other euro zone yields were 2-5 bps higher on Monday.
Belgium sells 1.5-2 billion euros of bonds maturing in 2025 and 2028 on Monday, followed by sales from the Netherlands, Finland, Germany, Italy and Portugal later in the week. Most of the supply comes in the 10-year maturity.
Also gaining attention from investors is a meeting of Federal Reserve governors to consider the advance and discount rates. The meeting, which is fairly regular and was announced on the Fed's website last Thursday and will take place at 1630 GMT. For Fed announcement click here: http://www.federalreserve.gov/aboutthefed/boardmeetings/20151123advexp.htm
Eight of the 12 regional Federal Reserve banks urged the central bank to raise the discount rate to 1 percent from 0.75 percent in September, minutes from the meeting showed.
They said such a move is needed to normalise the spread between the discount rate and the overnight federal funds rate, the central bank's primary economic lever, which is widely expected to be raised next month.
"Watch this space, also with rate hike speculation possibly receiving another short-term boost from today's expedited but closed-door Fed meeting on discount rates to be charged by the regional Feds," Commerzbank strategist Rainer Guntermann said.
San Francisco Fed President John Williams said on Saturday there is a "strong case" for raising interest rates when Federal Reserve policymakers meet next month, as long as U.S. economic data does not disappoint.
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