Euro zone bond yields higher on supply but weak data caps rise

LONDON: Euro zone government bond yields edged up on Wednesday, as investors made way for a new wave of bond supply but weak economic data from the bloc's largest economies limited the rise.

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.

French consumer confidence fell in December to its lowest since November 2014, putting more pressure on the euro zone's second-biggest economy, which has been hit by anti-government protests.

It was against this backdrop that Germany sold around 3.18 billion euros of a new 10-year bond in a sale that saw strong demand despite the low yield of 0.29 percent on offer.

The auction takes place in one of the busiest weeks of the year for euro zone debt issuance as well as a flurry of syndicated bond deals at the start of the year.

Portugal, Ireland and Italy are all planning to sell bonds via banks soon, according to reports on Tuesday.

Hefty supply has taken the edge off a stellar rally in euro zone bond markets sparked by growing concern about the economic outlook.

At the same time, the weak economic backdrop and risk factors such as Britain's departure from the European Union continue to lend support to higher-rated bonds in the bloc.

"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."

On Wednesday, most 10-year bond yields in the bloc were marginally higher on the day.

German 10-year Bund yields rose to almost 0.24 percent  -- above more than two-year lows hit last week at around 0.15 percent.

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 Belgian 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.