LONDON: Bund futures fell at the open on Wednesday with traders cautious before a German bond auction which could see investors paying Berlin a premium for the first time ever to park their cash in its two-year paper.
German two-year bond yields are already in negative territory in the secondary market and it would be the first time such paper would attract a negative yield at auction.
The counry will sell up to 5 billion euros of its zero coupon two-year bonds, with the auction expected to find sufficient demand given persistent investor worries about the ability of euro zone leaders to stop the debt crisis from engulfing Spain and Italy.
"(The auction) is going to come in at negative yield. There seems to be decent demand for the paper even at these levels," a trader said.
"But we've been trading sideways in the Bund all week and I don't see anything much to change that today," he added.
The Bund future was last down 15 ticks at 144.97.
Market focus remained on Spanish and Italian debt after the Italian Prime Minister expressed "grave concerns" that the country's autonomous Sicily region may default, reminding investors the debt crisis is far from being under control.
Spain may face more selling pressure in bond markets ahead of a 3 billion euro auction of paper with maturities up to seven years on Thursday. Although the Madrid's borrowing costs for 12-month treasury bills fell from a mongh ago at an auciton on Tuesday, they remained high by historic standards.
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