Euro zone bond yields rise with new supply due from Spain, France

April 2, 2020: Euro zone government bond yields rose on Thursday as some investors moved back into riskier assets, with demand for new bonds issued by Spain and France expected to offer a gauge of current market sentiment.

Stocks were mostly mixed as data suggested the pace of new coronavirus infections was slowing in some countries, but the economic toll of the shutdowns was growing.

A jump in oil prices after U.S. President Donald Trump said he expected Saudi Arabia and Russia to reach a deal soon to end their oil price war did improve the general tone in markets.

The 10-year German government bond yield rose 4 basis points to -0.426%, pulling away from the lows of -0.55% touched on Monday.

Other core euro zone bond yields were also higher. However, Italian yields fell. Italian yields often move inversely to the rest of the euro zone bond market, with investors buying Italian bonds when risk sentiment picks up. The 10-year yield dropped 7 basis points to 1.481%, while the two-year note was down 6 basis points at 0.358%.

This week has been a busy one for new debt issuance, with Belgium and Portugal having already enjoyed strong demand for theirs and Spain and France set to go to the market on Thursday.

Analysts said many investors would look to primary markets and demand for new government debt as a guide.

"Supply in these times tends to be much more important as an indicator to where the market will trade than it would normally be," said Peter Chatwell at Mizuho.

"Once we see the response to today's supply, then the market will have more conviction."

France is set to raise 7.5 billion euros to 9.5 billion euros ($8.2 bln-$10.4 bln) from its bond issue. Spain is aiming to raise 5 billion to 6 billion euros.

New jobless claims data in the United States due at 1230 GMT will also be widely watched after last week's numbers showed the number of Americans filing claims for unemployment benefits surged to a record of more than 3 million.

Unicredit analysts noted that the Federal Reserve had overnight announced it would temporarily ease some capital requirements for banks, which it expected to continue to put pressure on Treasury yields.

With Treasury yields falling again, Unicredit noted that the spread between German and Treasury bonds was compressing.

The 10-year U.S. Treasury yield fell 4 basis points in European trading to 0.592%. ($1 = 0.9149 euros)

Reuters