German yields touch two-month high, Austria sees record demand for debt sale

Germany's 10-year yield touched a new two-month high on Thursday

  

Germany's 10-year yield touched a new two-month high on Thursday as debt issuance from euro zone governments picked up again.

Austria was set to raise 5 billion euros ($5.9 billion) from a new 15-year bond at syndication, of which it will retain 500 million euros, according to a lead manager memo seen by Reuters.

The deal received a record 42 billion euros of demand, said Christian Schreckeis, head of issuance and portfolio management, investor relations and federal budget at the Austrian finance agency.

In auctions, Spain raised 5.19 billion euros from bonds due 2024, 2026 and 2031. 

France raised 9 billion euros from bonds due 2024, 2026 and 2027 and another 1.86 billion euros from inflation-linked bonds due 2026, 2031 and 2040. 

Germany's 10-year yield, the benchmark for the bloc, rose to a two-month high at -0.293% in early trade and was unchanged by 1147 GMT at -0.31%.

Michael Leister, head of interest rates strategy at Commerzbank, said heavy supply may be taking its toll on German bonds, which have accelerated their underperformance against U.S. Treasuries this week.

The gap between 10-year German and U.S. yields tightened six basis points this week, putting German bonds on track for their biggest weekly underperformance against U.S. Treasuries since mid-June. 

Lyn Graham-Taylor, strategist at Rabobank, saw the main driver behind the lag in euro zone bonds as the surge in the bloc and Germany's inflation expectations. Bond yields move inversely with prices.

"Our key view is that you're seeing a bit of inflationary pressure priced into Bunds ... because the start of (rising inflation expectations) coincided with the SPD leading in the (German election) polls," he said, referring to the German Social Democrats.

Focus will also be on European Central Bank head Christine Lagarde, who is due to speak at 1200 GMT. The ECB last week decided to slow its pandemic emergency bond buying during the fourth quarter, but calmed fears of a potentially more hawkish move.

She will follow Finnish central bank chief Olli Rehn, who said any exit from ECB crisis stimulus would be "very gradual" and would ensure favourable financial conditions were maintained. 

A flurry of U.S. data, including retail sales due at 1230 GMT, will be another focus point for bond investors.

Analysts at Mizuho said U.S. data on Thursday could provide more clarity around the macroeconomic picture ahead of next week's U.S. Federal Reserve meeting, which will also be a key event for euro zone bonds as they often move in tandem with U.S. Treasuries.

The data follows U.S. inflation figures on Tuesday, which showed consumer prices increased slightly slower than expected in August, lending further evidence to policymakers' conviction that a recent pick up in inflation is transitory.

($1 = 0.8495 euros)

(Reporting by Yoruk Bahceli Editing by Raissa Kasolowsky and Mark Potter) ((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: yoruk.bahceli@thomsonreuters.com))


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