* Irish, Portuguese 10-year bond yields hit two-week highs
* Investors worry their central banks to hit bond-buy limits
* Ireland will reduce pace of bond-buying by 50 pct - source
* Most euro zone bond yields fall on QE relief
(Updates prices for close)
By Dhara Ranasinghe
LONDON, Dec 9 Bond yields in Ireland and
Portugal surged to two-week highs on Friday as investors singled
out countries that may face a scarcity of eligible debt for the
European Central Bank's asset purchase programme.
A day after the ECB announced it would extend quantitative
easing to the end of 2017, the two countries were left behind in
a broad rally as investors worried that they may not benefit
fully from the extra nine months of stimulus.
National central banks buy their own government debt under
the ECB's bloc-wide stimulus programme, but the purchases are
limited to a third of their outstanding debt.
Ireland's central bank will reduce its pace of purchases
under the stimulus scheme -- which has stood at around 1 billion
euros per month recently -- by around 50 percent, a source
familiar with the matter said on Friday.
The Bank of Portugal said that it will not alter the way it
purchases debt under QE, and will make sure Portuguese debt is
bought until the end of the plan.
"Markets are punishing Ireland and Portugal because some
people think the issuer limit will be hit next year," ING
strategist Martin van Vliet said. "They appear to be the victims
of this exercise, at least today."
Ireland's 10-year government bond yield rose as much as 6
basis points to 1.00 percent, while most other
euro zone bond yields were 1-5 bps lower on the day.
Portuguese bonds were the other notable underperformer.
Ten-year borrowing costs in the indebted southern European
state rose as much as 9 basis points to a two-week peak of 3.90
percent. That comes on top of a 24 bps jump on Thursday - the
biggest one-day rise since June 24, when markets reacted to
Britain voting to leave the European Union.
Societe Generale said purchases of Portuguese and Irish
government bonds, at the current pace, would end by March.
Others said the ECB's move on Thursday to lower the threshold to
include one-year bonds should eke out purchases of Portuguese
and Irish debt for a little longer, though not until December
For other euro zone bonds, the ECB's unexpected decision to
continue its stimulus programme at reduced levels through 2017
gave way to relief that the bond-buying would remain in place
for some time.
The ECB on Thursday said it would trim monthly purchases to
60 billion euros from 80 billion euros from April.
Still, the ECB promised protracted stimulus to support the
region's fragile economic recovery, and the extension of the
scheme until the end of 2017 was three months longer than
"It is clear that even if there is a tapering, and we would
call it that, the overall message from the ECB yesterday was
dovish," said Jan von Gerich, chief strategist at Nordea.
Germany's benchmark 10-year bond yield was down 5 basis
points (bps) at 0.35 percent, some 10 bps below an 11-month high
hit on Thursday after the ECB met.
Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by John Geddie; Editing by Jeremy Gaunt
and John Stonestreet)