LIVE MARKETS-Euro zone bond supply front-loaded in H1

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EURO ZONE BOND SUPPLY FRONT-LOADED IN H1

Attention in recent weeks has been on global bond supply, with long-end auctions in Japan and the U.S. drawing weak demand, but the euro zone has so far avoided the struggles of other borrowers and supply has generally been well received.

"Despite global volatility, tighter EGB spreads so far this year indicate strong investor appetite for European bonds," writes Citi European rates strategist Andrea Appeddu.

The spread between Italy's and Germany's 10-year yields DE10IT10=RR trades at its tightest level since early 2021. It's a similar story for Spain, while Greek spreads are at their tightest since at least 2011, according to LSEG data.

According to Citi, by the end of this month, EMU-11 sovereigns (Germany, France, Italy, Spain, Netherlands, Austria, Belgium, Finland, Ireland, Portugal & Greece) are likely to have achieved 64% of bond issuance for the year, surpassing the 5-year average of about 60%.

The big four economies of Germany, France, Italy and Spain are all set to outpace their average.

"Issuers could possibly be positioning for higher-than-planned annual issuance, in case tariff uncertainty persists, fiscal spending increases or infra/defense projects accelerate," Appeddu says.

"However, given the sustained investor appetite, Eurozone bond markets appear capable to absorb any increase in issuance volumes in H2."

Reprinted with permission of Citi Research. Not to be reproduced.

(Samuel Indyk)

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