LONDON: Euro zone bond yields rose on Thursday as investors shaken by the market's recent selloff struggled to absorb more than 15 billion euros of new bonds from France and Spain.
Before the debt sales, yields were falling after Federal Reserve minutes showed late on Wednesday the U.S. central bank was in no hurry to raise interest rates. Focus then shifted to the European Central Bank's plan to accelerate asset purchases in May and June.
France sold almost 10 billion euros of fixed-rated and inflation-linked bonds while Spain auctioned 5.5 billion euros of short- and medium-term.
"The sell-off that we had means that some investors are very cautious of buying on dips, and that means, technically speaking, that they set a tighter stop than they normally would," said Mizuho strategist Peter Chatwell.
"Investors try not to take on as much risk and that means that the market acts in a more volatile manner."
German 10-year yields, the benchmark for euro zone borrowing costs, were up 3 basis points at 0.65 percent from the day's low of 0.60 percent. French and other top-rated euro zone bond yields were up a similar amount.
Spanish and Italian yields were 2 bps higher at 1.83 percent and 1.88 percent, respectively.
Preliminary surveys showing a recovery in French business activity in May also undermined demand for top-rated bonds, although the private sector in Germany -- the euro zone's biggest economy -- grew less than expected.
Data also showed that manufacturing activity in China and Japan remained sluggish in May, though lack of inflationary pressure suggested the authorities in Asia's top two economies could inject more stimulus if necessary.
Many analysts expect the market to remain jittery for the rest of the month. But they ruled out the kind of spike in yields seen recently, which has led some banks to raise their forecasts for German 10-year yields.
Increased coupon payments and bond redemptions in the coming month and the ECB's plans to ramp up asset purchases in May and June to offset thin liquidity this summer were expected to push yields lower.
"Next week, supply will be lighter and in June net supply will be negative, so conditions will be more supportive for the market," BNP Paribas strategist Patrick Jacq said.
"I see yields dragged down from these levels. The 10-year Bund yields could decline substantially but I don't expect a return back close to zero percent," he added.
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