Peripheral Yields Rise On Greece Woes, Supply Concerns

Yields on peripheral government bonds rose Thursday as increased uncertainty over the second Greek bailout package caused markets to shy away from riskier assets.

Adding to the already negative tone of the market was news that Moody's had placed 114 European financial institutions on review for downgrade, while Spain and France prepared to sell around EUR14 billion of conventional and index-linked government bonds.

The yield on the 10-year Spanish bond rose by 16 basis points to 5.56%, while the Italian 10-year was quoted at 5.89%, up 18 basis points in early trading, according to Tradeweb.

The ongoing delay in finding a solution to the Greek debt crisis has continued to weigh on bond markets, with talk now that some euro-zone members would like to delay a decision on the second bailout until after the April Greek elections.

"Further delays to solving the Greek situation are weighing on risk sentiment. With trust in Greek politics deteriorating also among European Union officials, stories about a delay of the package to a time after the upcoming Greek elections begs the question how the EUR14 billion March Greek government bond redemption will be handled," Commerzbank said in a note to clients.

The Spanish Tesoro returns to the market Thursday selling up to EUR4 billion of 2015 and 2019 maturity bonds, following last week's unscheduled 10-year syndicated bond sale. Spain has already raised nearly 30% of its 2012 borrowing requirements, causing some investors to worry that there may be an over-supply of Spanish paper in the market.

France is also active in the issuance market, selling up to EUR8 billion of two- to five-year conventional bonds and EUR1.8 billion of inflation-linked bonds.