Bund yields fall as markets brace for month of big risk

LONDON: Germany's 10-year bond yield fell on Wednesday, with demand for the safe-haven asset firm at the start of a month filled with big risk events such as a referendum in Britain on membership of the European Union.

Market sensitivity to Brexit talk is increasing, with German and UK bond yields falling on Tuesday after two surveys by polling firm ICM showed British voters moving towards voting to leave the EU in the June 23 referendum.

"In the past week the stay camp had the lead in the polls but that appears to have changed, so risk aversion is back," Commerzbank strategist Rainer Guntermann said.

Yields on German Bunds, considered to be among the safest assets in the world, fell a further 2 basis points on Wednesday to 0.13 percent -- closing in on Friday's 11-day low of 0.12 percent.

Mixed U.S. economic data on Tuesday that dampened expectations for a near-time rise in U.S. interest rates, weaker oil prices and a generally soft tone in global stock markets all supported euro zone debt markets.

Bond yields outside Germany were flat to 2 basis points lower with the backdrop of risk aversion expected to help support demand at a four billion euro sale of five-year German bonds later in the day.

In addition to the looming British referendum, a host of other risk events are expected to keep German Bund yields pinned near this year's lows of just 0.075 percent.

These include Italian municipal elections this weekend, a meeting of the U.S. Federal Reserve in mid-June and a Spanish election on June 26.

In addition, analysts say Greece remains a potential source of market volatility. While Greece and its international lenders last week wrapped up the bulk of reforms needed to secure bailout cash, there are some loose ends to tie up.

To qualify for the funds, Greek lawmakers approved tax hikes and pension reforms and freed up the sale of bad loans weighing on banks' balance sheets. But Athens must also legislate a series of extra actions which the left-led government resists due to growing dissent at home.

Greece is expected to feature highly when the European Central Bank meets on Thursday. Last week's progress in talks has spurred talk that the ECB could restore a waiver for Greek government bonds that could deliver cheaper funding to its troubled banks.