German bonds tumble as Greek election sparks relief

LONDON: German bond prices fell at Monday's open as an election victory for Greece's pro-bailout New Democracy party staved off fears of an imminent Greek exit from the euro zone, but few saw relief lasting over the long term.

Political parties in favour of the country's life-support bailout began forging a government on Monday after a narrow victory over radical leftists that wanted to tear up the existing agreement.

That brought relief to financial markets, easing demand for the relative safety of German debt, boosting equity markets and lifting the euro to a one-month high against the dollar.

German Bund futures briefly fell to a low of 141.14, down 115 ticks, before recovering to around 141.58. In the cash market 10-year yields rose 9 basis points to briefly hit 1.544 percent, their highest since mid May.

However, analysts did not see the relief prompting a long-term decline in demand for German debt.

"We remain sceptical of any concerted risk rally after the initial move...recently these rallies haven't lasted as long as people expect," a trader said.

Market participants highlighted the slim margin of the election victory as a source of uncertainty in Greek policy making, and said concerns over Spain - currently battling to maintain market confidence in its debt - could return to prompt a rebound in Bunds.