Periphery yields up

Yields on lower-rated euro zone bonds edged away from record lows on Friday as a debt exchange in Italy prompted some investors to book profits after a recent boost to the rally from the Federal Reserve.
Italy exchanged 2.23 billion euros ($3.04 billion) of new bonds maturing in 2022 for outstanding 2015 and 2017 paper as the country continues efforts to extend the average life of its debt and reduce refinancing risks should market conditions sour.
The amount exchanged fell short of the 2.5 billion euros Italy was aiming for, with analysts saying this was likely due to some investors being wary of exposing themselves to longer-term debt that carries potentially higher risks.
The euro zone's lower-rated sovereigns, one-third or more of whose debt expires in the next three or four years, have scheduled several debt exchanges or buybacks in recent months to ease this near-term redemption hump.
The refinancing burden has grown since the height of the crisis in 2011 and 2012, when investors' reluctance to take on longer-term risk meant periphery countries were able only to sell short-dated bonds.
Italy's bond exchange prompted a sell-off in the debt by investors who demand a higher premium for holding longer-term paper.
It was also an opportunity to book profits following a 7 basis point drop in yields on Thursday after the Federal Reserve signalled that rising inflation would not trigger an increase in US interest rates any time soon. Italian 10-year yields rose 4 bps to 2.84 percent, having fallen as low as 2.77 percent the previous day - within a whisker of record lows. Spanish, Portuguese and Irish yields were up 1-4 bps as well.
"For Italy conducting such an exchange pushed up the yields but this is positive for debt agencies who can use this tool to alleviate redemption pressures that are coming up and it also offers investors to go up the curve," said David Schnautz, a strategist at Commerzbank. "These types of exchanges and buybacks should be coming along more frequently going forward and we have already seen Spain, Portugal and Ireland being active."
UniCredit estimates that after Friday's exchange, Italy will have swapped about 9 billion euros worth of 2015 bonds.
"We expect at least one more exchange auction, given that 2015 remains a rather heavy year in terms of redemptions, currently slightly more than 200 billion euros," UniCredit strategists said in a note.
Market focus was also on a European Union finance ministers meeting to see if proposals to ease fiscal discipline in the bloc would be adopted. Italian Prime Minister Matteo Renzi is thought to be pushing for more wriggle room on budget targets.