Euro zone bond markets steady ahead of auction test

LONDON: Government bond yields in the euro area were steady on Wednesday as investors braced for the next wave of this week's hefty bond supply and as appetite for fixed income waned on rising hopes of progress in U.S./China trade talks.

Germany, the euro zone's benchmark bond issuer, is scheduled to sell 4 billion euros of a new 10-year bond later this session.

In addition, Portugal is planning a syndicated 10-year bond sale soon, while Ireland and Italy are also making plans to sell bonds via a syndicate of banks, according to reports on Tuesday.

Looming supply, especially heavy this month, has taken the edge off a stellar rally in euro zone bond markets sparked by growing concern about the economic outlook.

Data on Wednesday showed German imports fell unexpectedly in November, outstripping a drop in exports and widening the trade surplus, in a further sign that Europe's largest economy is likely to post meagre growth in the fourth quarter of 2018.

In early trade, most 10-year bond yields in the bloc were little changed to a touch higher on the day.

German 10-year Bund yields edged up to 0.24 percent  -- holding above more than two-year lows hit last week.

"Outright yield levels are low but that doesn't mean there is not demand for bonds," said Martin van Vliet, senior rates strategist at ING.

"The overall backdrop for the economy is not as gloomy as feared but there are still potential risks out there such as Brexit."

Bond auctions at the start of the year are being viewed as a good measure of appetite for government debt as investors assess a potential turn in the world economy.

A gauge of overall demand at a U.S. three-year government debt auction on Tuesday fell to its weakest level since early 2009.

In the euro zone, analysts say the flurry of syndicated-bond deals at the start of the year is a good sign, noting strong demand at a sale of Belgium bonds on Tuesday.

"Judging from primary market activity so far this week, there seem to be a strong appetite for semi-core euro zone government debt, as suggested by the record 28.5 billion euro book for Belgium's deal," analysts at Mizuho said in a note.