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Euro Zone Bond Focus Turns to Supply After Sharp Sell-Off

AMSTERDAM, Aug 26 (Reuters) - Euro zone bond markets turned their focus onto a pick-up in supply on Wednesday, with yields continuing to inch up after a hefty sell-off a day earlier saw key assets suffer their worst session since May.

Market levels stabilized after both safe-haven German government bond yields and those of their riskier Italian peers saw their biggest daily jumps in nearly four months on Tuesday, with a boost to risk appetite from German data and news on U.S.-China relations denting appetite for fixed income.

Germany’s 10-year bond yield rose another 2 basis points to -0.40% in early Wednesday trade, a 1-1/2 week high, although a subdued move after a 7 bps rise on Tuesday. Italy’s 10-year yield was up 1 basis point to 1.10%, near three-week highs.

“With (Bund) yields back closer to the upper end of their recent ranges, however, the selling pressure looks set to subside and we turn less defensive again,” Commerzbank’s head of rates and credit research Christoph Rieger told clients.

Focus was turning to issuance on Wednesday as the summer period ends. Finland started the sale of a new 10-year bond that will raise 3 billion euros via a syndicate of banks, according to a lead manager message seen by Reuters. This is the first syndication from a government in the single currency bloc since late July, according to Refinitiv IFR data.

In syndications, borrowers hire banks to sell the debt directly to end investors, allowing them to sell larger volumes and tap a wider investor base. Governments are using them to sell debt much more frequently than in the past, as they ramp up borrowing to fund coronavirus stimulus programmes.

Germany and Portugal will also sell bonds on Wednesday, via auction. Europe’s leading economy will sell 3.5 billion euros of five-year debt, while the Southern European country will sell up to 1.25 billion euros of seven and 30-year bonds.

(Reporting by Yoruk Bahceli; Editing by Toby Chopra)

Source: Reuters

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