"Hang on a sec," bond markets say after week of ECB buying

(Updates prices)

By Marius Zaharia

LONDON, March 13 (Reuters) - The rally in euro zone bonds paused on Friday, after bond-buying by the European Central Bank in the first week of its quantitative easing programme crushed yields and left investors wondering whether they could fall further.

The scale of the move is not unprecedented but, just one week into a programme intended to last till September 2016, it has effectively floored yields on most euro zone bonds. They are now at record lows and -- in many cases -- at negative levels.

Highlighting how far the ECB is pushing the market, a 2062 Austrian bond, issued three years ago at a yield of almost 4 percent, now yields less than 0.90 percent. And it's not even within the remit of the QE programme, which covers maturities to 30 years.

This has given renewed urgency to a question that has nagged at bond investors for the past 2 1/2 years, since ECB President Mario Draghi pledged to do whatever it takes to save the euro.

"Where will it all end?," said Gary Jenkins, chief credit strategist at LNG Capital. "Well, with Austrian 50-year debt trading at 0.85 percent one has to say that it is unlikely to end well. However, it is unlikely to end soon, right? Well, maybe sooner than the market thinks."

Thirty-year German yields had their steepest weekly decline since the height of the crisis in mid-2012, dropping almost 30 basis points to 0.69 percent.

German bonds with maturities of up to four years trade below the ECB's deposit rate of minus 0.20 percent. Maturities of up to seven years have negative yields and 30-year yields trade below those on U.S. two-year debt.

ECB policymaker Benoit Coeure said the ECB had bought 9.8 billion euros worth of assets in three days, with an average maturity of nine years, putting it well on track to reaching its total target for March of 60 billion euros in bonds.

Traders said the ECB and the national central banks conducting the programme were still active on Friday. But given this week's strong buying, the banks can afford to slow down.

"Investors have been buying government bonds fearing the ECB would eat them all," Rabobank rate strategist Emile Cardon said, adding that the amount purchased by the central banks "was a little bit more than expected so tensions in the secondary market have eased a bit.

"But the tensions are likely to return. If you buy 9 billion euros and yields are already down 20 basis points, it means that you have to pay high prices to get the bonds. There's more than a year and a half to go."

German 10-year yields were a tad higher at 0.26 percent, having troughed at 0.188 percent on Tuesday -- almost half their levels at the start of the week. Italian and Spanish equivalents edged up to 1.17 and 1.12 percent, respectively, not far from all-time lows.

Didier Saint Georges, managing director at Carmignac Gestion, has focused on long-dated Spanish, Italian and Portuguese bonds in his recent purchases.

"It would be wrong for an asset manager to deprive his customers of a particularly enterprising central bank's generosity," he said. "Our portfolios are taking full advantage of the Draghi effect." (Editing by Nigel Stephenson and Larry King)