Portuguese yields rise to highest in almost a year as supply looms

LONDON: Spanish and Portuguese borrowing costs rose on Thursday, as bond sales from France and Spain turned investors' attention to hefty supply in the region this month.

Spain's 10-year bond yield rose to a three-week high after the country auctioned 4.1 billion euros of bonds. France sold about 9.5 billion euros ($9.97 billion) of long-dated debt on Thursday .

In a volatile day of trade, yields were also pushed around by competing factors: the minutes of the last US Federal Reserve meeting that struck a more uncertain tone than expected, supply, inflation worries and a fall in US bond yields. But the biggest moves came in the euro zone's periphery, where analysts said investors were positioning for a month of hefty supply.

Portugal's 10-year bond yield soared 14 basis points to 4.08 percent, its highest level in almost a year, as investors speculated that the country would probably also sell bonds via a syndicate of banks in January -- typically one of the busiest months for debt supply in the region.

"There are pre-supply concessions ahead of an anticipated syndicated bond issue in Portugal," said DZ Bank strategist Christian Lenk. "If you look at the past two years, we have seen a bond issue in the first half of January so it is a well-known pattern."

Spain's 10-year bond yield rose as much as 10 bps to 1.54 percent -- its highest in three weeks.

French and Italian counterparts also hit three-week highs and Germany's benchmark 10-year Bund yield briefly rose to 0.3 percent, its highest in a little more than two weeks.

But by late trade most euro zone bond yields had trimmed their rises or, as in the case of Germany and France, moved back down as US Treasury yields fell. Both US and euro zone bond markets drew some comfort from the minutes of the Dec. 13-14 meeting of Fed policymakers, released late on Wednesday. The minutes cast some doubt on the pace of interest rate rises in the world's largest economy, which will have a knock-on affect on the euro zone.

They showed that policymakers were considering faster rate increases, assuming economic growth accelerates because of fiscal stimulus under President-elect Donald Trump. But they also spelled out downside risks that could limit economic growth, such as trade barriers, the dollar's appreciation and uncertainty on fiscal measures.

"'Wait and see' remains the best way to describe the Fed's attitude, but the minutes show it is getting concerned that a hotter economy may warrant a less gradual hiking path," said Mizuho's head of euro rates strategy, Peter Chatwell.