Euro area yields dip, focus back to supply with Irish 20-year bond

AMSTERDAM: Benchmark German bond yields fell from four-week highs on Thursday as the market turned its focus back to issuance with a long-dated bond sale by Ireland.

Ireland received 30 billion euros of demand for of a new 20-year bond expected to raise 2 to 3 billion euros, hot on the heels of long-dated issuance from Austria and Spain this week and Italy last week, which issued up to 50-year maturities.

Long-dated issuance has resurfaced after dying down in February when the bond sell-off driven by growth and inflation expectations hit longer-dated bonds particularly hard, as they are more sensitive to a rise in underlying rates. Bond yields move inversely with prices.

While issuers are seeing lower demand than in their previous deals, Rabobank's head of rates strategy Richard McGuire said demand remained positive.

"The sell-off has meant that these deals are more attractive, they're cheaper," McGuire said.

Euro zone bond yields fell on Thursday. Germany's 10-year yield, the benchmark for the region, was down nearly 2 basis points to -0.28% at 1156 GMT after touching its highest in four weeks at -0.249% in early trade.

But with market gauges of inflation expectations barely changed on Thursday , Rabobank's McGuire saw little fundamental drive in the drop in yields.

Heavy supply put pressure on euro area bonds this week.

News that the European Union will receive additional doses of the Pfizer-BioNTech vaccine during the second quarter and the bigger-than-expected drop in US crude oil stockpiles on Wednesday also put upward pressure on safe-haven yields, which tend to rise with developments seen as positive for the economy, analysts said.

Earlier, Mizuho analysts said that the German 10-year yield's move above -0.26% "would be significant in breaking the tight range that has held since end-Feb".

Verbal intervention and an acceleration of the ECB's bond purchases had calmed euro area bonds in March and German yields dropped then.

But they are rising again in April and have underperformed US Treasuries, whose yields have fallen this month.

Mizuho analysts expect Germany's 10-year yield to rise to -0.15% by the end of the second quarter.

On the data front, the focus is on US retail sales due at 1230 GMT.