Government bond prices in Europe fell on Monday, tracking a renewed slide in U.S. Treasuries, with a figures from the European Central Bank showing it had bought fewer bonds than some investors had anticipated.
The European Central Bank has been buying debt issued by countries struggling to find buyers in the private markets. The central bank released the latest figures on its purchases on Monday, revealing it had bought roughly 2.67 billion euros worth of sovereign bonds over the past week.
That was almost a third more than the week before but not enough to scare investors who have been steadily driving the cost of Spain and Portugal's buying higher.
At the time of the speculation that they were in the market buying peripheral bonds, the view was that it was going to be a significant amount, said Suki Mann, a credit strategist at Societe Generale in London. 2.7 billion is not significant.
The Spanish and Portuguese spreads to German Bunds showed no reaction to the data, but yields continued to inch higher as the two governments strive to convince markets they can avoid a similar bailout to that taken by Greece or Ireland.
The 10-year Bund yield rose 3.2 basis points on the day to 2.988 percent. It briefly touched 3 percent in intraday trading, when ten-year Treasury yields hit a six-month high.
Nomura interest-rate strategist Fred Goodwin said the latest ECB figures did not suggest that the ECB would buy vigorously in the future.
If they can get the market to stabilize without buying a lot, I'd bet they'd be very happy to do that, he said. They'd rather bark loud and let the market do the work for them.
That strategy seems to have worked so far. SocGen's Mann said Bund yields did fall during last week's speculation about big ECB buying.
Markets are now looking to a European Union summit on Thursday and Friday, expected to lay out a mechanism to deal with fiscal defaults after 2013, for more signs on how policymakers intend to see off the crisis.
U.S. BONDS SET TONE
Analysts attributed much of the day's price action to U.S. Treasuries, which saw a renewed slide due to expectations for a swifter U.S. economic recovery and larger fiscal deficits.
Essentially investors have turned more positive on the U.S. economy and Bunds are caught up in the U.S.-led selloff in core markets, said Nick Stamenkovic, rate strategist at RIA Capital Markets.
But there is reasonable value in Bunds around 3-3.10 percent because the growth picture in Europe, apart from Germany, is not as supportive as in the U.S.
Treasuries underperformed, pushing the 10-year yield spread over Bunds to its widest since mid-November at 41 basis points.
March Bund futures were 46 ticks lower at 124.52, after hitting their lowest since early May at 124.38.
Two-year German yields were down 0.6 bps at 1.073 percent, which pushed the 2/10 yield curve down to 192 basis points, around 15 bps flatter over December.
Yields on most euro zone government bonds rose but, with Bunds selling off too, yield spreads were little changed.
The main test of sentiment toward peripheral issuers this week is Spain's sale of up to 3 billion euros of 2020 and 2025 bonds on Thursday. Economy Minister Elena Salgado said last week that Spain's cost of borrowing would probably rise at the sale.
There is significant uncertainty surrounding Spain's auctions this week, Credit Agricole rate strategists said in a note to clients. We attribute much of last Friday's Spanish underperformance to this, as there was no obvious concession in the curve ... before that session.
Spanish 10-year yields were 4.2 bps higher at 5.494 percent.
(Additional reporting by Kirsten Donovan)
(Graphic by Scott Barber; Editing by Patrick Graham)