* Peripheral bonds in demand ahead of final TLTRO operation
* Gap between Portuguese/German yields at 3-month low
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By John Geddie and Marc Jones
LONDON, March 23 Bonds from vulnerable euro zone
governments like Portugal and Italy were in demand on Thursday
as the European Central Bank prepared to dispense the final
instalment of cheap, long-term bank loans that have been running
for over five years.
Investors appeared to be anticipating solid demand for the
cash with the central bank also set to trim the amount of money
it pumps into the financial system by cutting monthly bonds
purchases from April from 80 billion euros ($86.25 billion) to
60 billion euros.
"The driving force for the market reaction is the extra
liquidity provided to the market, as investors see it as ...
more money that can be invested into bonds or for lending,"
Mizuho strategist Antoine Bouvet said.
"This scheme is high up on the list of things that can be
reintroduced if conditions sour again."
The consensus among money market traders polled by Reuters
was for a take-up of 125 billion euros although forecasts ranged
widely from 50 billion to 300 billion euros. The net amount will
be reduced slightly with 16.7 billion euros of older loans due
to be paid back.
The result is due around 1030 GMT. It is the last of four
targeted long-term refinancing operations announced last year
but also marks the end of a run of handouts that began in 2011
as the ECB's flagship response to the euro zone debt crisis.
In the future, banks will only be able to get either 1-week
or 3-month loans from the ECB, which will be an enormous cut in
the duration of credit it lends to them.
Yields, which move inversely to prices, on Portuguese
, Spanish and Italian
debt fell 1-3 basis points ahead of the results.
That closed the gap with German bond yields which were flat
at 0.41 percent.
The gap between Portuguese and German bond yields held at
its lowest in over three months at 343 basis points. The gap
between Spanish and German equivalents held at a one-month low
of 129 basis points.
For Reuters 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
($1 = 0.9276 euros)
(Editing by Jeremy Gaunt)