LONDON: Bund futures opened higher on Friday after Moody's placed Spain's credit rating on review for downgrade fuelling fears about the spread of the euro zone debt crisis and boosting the already-strong demand for safe-haven assets.
Fresh delays in the US political battle to avoid an unprecedented default added to the risk-averse tone in the market.
In the euro zone, the sovereign debt crisis continued to show signs of spreading as Moody's placed Spain's AA2 rating on review for possible downgrade, citing weak growth and the risk of a sustained rise in funding costs.
"This will give Bunds a bid, peripheral spreads will be under pressure in the short term. I can't see what's going to turn that around today," a trader said.
Bund futures rose over half a point to 129.97, leaving the July 12 intraday high of 130.91 as the next resistance level to watch.
The rating action comes just one week after European policymakers unveiled a package of measures aimed at halting the spread of the region's debt crisis and shoring up market confidence.
Since the announcement of the deal, which was initially well received, doubts about how the plan can be implemented have seen Italian and Spanish yields rise back towards their euro-lifetime highs.
Spanish 10-year government bond yields were around 6.05 percent at Thursday's European settlement.
Copyright Reuters, 2011
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