Euro zone bond markets hold ground as EU kicks off issuance

* Euro zone periphery govt bond yields

AMSTERDAM, Oct 20 (Reuters) – Euro zone bond yields held ground on Tuesday as the first of the European Union’s debt sales backing its recovery programmes finally kicked off.

All attention will be on the bond sale, part of a funding programme that will eventually be a game changer for bond markets, which has been awaited for weeks after several delays.

The EU commenced the sale of 10- and 20-year social bonds, to start funding its SURE unemployment scheme of up to 100 billion euros ($117.6 billion), according to lead managers.

ING analysts expect the EU could sell 5 billion euros of the 10-year bond and at least 3 billion euros of the 20-year bond.

The broader market was also steady on Tuesday, with 10-year German bond yields unchanged at -0.63%, just off their lowest since March hit last week as coronavirus fears enhanced demand for safe-haven assets.

Christian Lenk, a rates strategist at DZ Bank, said investor attention would remain on the U.S. stimulus negotiations, with a deadline coming up later on Tuesday, and the record number of coronavirus cases in Europe.

French bonds, which analysts expect might compete for investor demand with the EU, as they trade similarly, but are rated lower than the EU, were also unchanged in early trading.

DZ Bank’s Lenk said he did not expect the EU bond sale to have a major impact on trading levels for other issuers in the region.

“We might see some repercussions on the micro level, but I don’t think we’re going to see major disruptions.”

Elsewhere in the primary market, Germany was due to auction 4 billion euros of two-year bonds.

Meanwhile, the European Central Bank’s bond buying slowed last week, data showed late on Monday, which analysts said was likely due to the level of redemptions in October.

But buying under its pandemic emergency purchase programme, which it can use to stabilise markets, was the highest in three weeks.

($1 = 0.8501 euros)

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