LONDON: Spanish bond yields held steady on Thursday before the country's final debt sale of 2011 while German Bunds remained supported by investors seeking safer liquid assets ahead of the year-end with no sign of the debt crisis easing.
Spain is set to see yields fall at a sale of up to 3.5 billion euros of 2016, 2020 and 2021 bonds, in the last euro zone debt auction before the Christmas break.
Concession building, or cheapening of the paper, in the run up to the sale is expected to help and worries about Spain's ability to fund itself are less acute than those surrounding Italy which faces redemption and coupon payments of around 100 billion euros between January and April, Reuters data shows.
Spain has no major redemptions until April.
"These sales are getting done and there's some relief at that but it's at a price and every time there's more to sell we're going to be seeing more of a concession," a trader said.
There was some relief in bond markets on Wednesday after Italy sold 3 billion euros of bonds, despite having to pay an eye-watering 6.47 percent to borrow for five years.
But with disappointment setting in after an EU summit last week did not produce decisive measures to end the debt crisis, Italian yields are higher on the week and with domestic opposition to Prime Minister Mario Monti's tough austerity package growing.
March Bund futures were three ticks lower at 137.83 after failing to hold above Thursday's 138.08 high following a better-than-forecast, although still gloomy, German business survey.
But the contract was still around 2.5 points higher this week, while benchmark 10-year German yields have retreated below 2 percent again.
"Yet again the market is disappointed by another wasted opportunity by policymakers to present any meaningful approach, let alone solution, to the debt crisis, so the risk-on rally we saw towards the end of November is clearly losing momentum," said WestLB rate strategist Michael Leister.
SEB technical analysts said an extension through Wednesday's high for the Bund futures would set the stage for a move towards the September and November highs at 139.19 and 139.58.
Trading is expected to remain volatile into year-end, exacerbated by dwindling trading volumes which have roughly halved in recent sessions to around 500,000 lots per day.
Ten-year yields were 1.5 basis points higher at 1.94 percent with the sharp swings in the market making it difficult hold long-term positions.
Goldman Sachs said it had closed its short Bund position -- one of the bank's six new "Top Trades" unveiled on Nov. 30 -- after it traded through the 2 percent stop loss level. The bank said, however, it still believed Bunds would head lower in 2012.
US Treasury yields were lower and the demand for safe-haven assets was also reflected on Wednesday at a German two-year bond sale where the average yields fell to just 0.29 percent, the lowest in the euro-era. Measures by European Union leaders to strengthen fiscal integration as the debt crisis worsens failed to restore investor confidence and markets are braced for blanket credit ratings downgrades after Standard & Poor's warned it could cut 15 euro zone sovereigns, including Germany and France.
Overall, the flash purchasing manager index (PMI) showed the decline in the euro zone's private sector eased a little this month, but that a recession still looked inevitable with the region's periphery struggling badly.
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