Greek bond yields dip amid speculation of imminent bond issue

* Speculation Greece may issue bond as soon as Wednesday

* Foreign buyers flood Greek Treasury bill sale

* ECB officials play down prospects of imminent QE

(Recasts and writes through, adds fresh quotes)

LONDON, April 8 (Reuters) - Greek 10-year yields dipped on Tuesday afternoon on rising speculation that the country, which restructured 130 billion euros in debt in 2012, could issue its first bonds in four years as soon as Wednesday.

Ten-year yields fell 2 basis points to 6.14 percent, reversing an earlier rise and outperforming all other euro zone government bonds.

"There is widespread speculation that the bond is coming tomorrow and that is pushing yields lower," said RBS strategist Michael Michaelides.

Greece has hired a group of banks to manage the sale of a 2 billion euro five-year bond, Thomson Reuters markets service IFR reported last Thursday.

This will be its first bond issue since just before Athens received the first tranche of a 240 billion euro bailout in 2010, and comes just two years after it forced investors into taking painful losses on their bondholdings.

Athens sold six-month treasury paper on Tuesday at the cheapest borrowing cost at auction since its debt crisis began in 2010. The strong demand for the sale, most of which was from foreign buyers, provided further momentum for its planned return to longer-term bond markets.

Finance Minister Yannis Stournaras tried on Monday to pour cold water on rising speculation that a bond sale was imminent, but bond traders cited a report in the Wall Street Journal that the deal would come on Wednesday.


Greek bonds outperformed other euro zone government debt, whose yields edged higher as investors responded to warnings from European Central Bank policymakers that any move to print money to raise ultra-low inflation was still a long way off.

ECB President Mario Draghi opened the door to central bank asset purchases last week, when he said that the bank's Governing Council unanimously agreed such an option was on the table if inflation stayed close to zero for too long.

On Monday, however, several ECB policymakers stressed that they were only getting ready for what economists call quantitative easing, or QE, and they would only move if they thought the inflation outlook had deteriorated significantly.

The ECB still needed to navigate through an array of issues on the design of any QE programme and would have to work fast to develop the market for asset-backed securities (ABS) should it decide to buy them under the plan.

Spanish 10-year yields rose 1.8 bps to 3.21 percent, bouncing off last week's 8 1/2-year lows, while Irish equivalents rose 3.7 bps to 2.98 percent, coming off record lows. Italian 10-year yields rose 2.9 bps on the day to 3.22 percent, having pared losses from earlier in Tuesday's session.

German Bund yields, the benchmark for euro zone borrowing costs, rose 2 bps to 1.56 percent.

"There's a bit of profit-taking because of the fact that the ECB is not quite ready to begin any purchases of sovereign bonds in the near term," said Gianluca Ziglio, executive director of fixed income research at Sunrise Brokers.

"In fact, I think a lot of the talk about QE is aimed at grounding forward guidance even more. Implementing QE poses so many problems - what do they buy? What can they achieve?"

(Editing by Nigel Stephenson and Susan Fenton)