Bunds stable as short-selling ban eases tension

LONDON: German Bund futures were little changed on Friday as a move to ban short-selling in stocks of four euro zone countries calmed some of the nerves stretched by a recent escalation of the bloc's debt crisis.

France, Italy, Spain and Belgium banned short-selling on some of their stocks from Friday to limit volatility and improve the mood in their equity markets, hit recently by a flurry of rumours about banking problems -- all denied.

At 0610 GMT, Bund futures were 2 ticks higher at 133.32, having opened the session at 133.50.

"When the US did it (banned short-selling) it didn't have a huge impact," one trader said. "I would question whether people want to be massively short into the weekend in this environment -- that would cap the downside."

The US temporarily banned short-selling in 799 banks and other financial institutions four days after the Lehman Brothers collapse in 2008. While share borrowing fell during the three-week ban, financial stocks continued to plummet.

Bunds slipped on Thursday at the end of a volatile session that mostly tracked stock markets after French and German leaders announced they would meet next Tuesday, buoying hope of a longer-term solution to the region's crisis.

But investors hoping for decisive policymaking have been disappointed before and Bunds are unlikely to take a significant hit before the meeting.

Traders expect the European Central Bank to continue to buy Italian and Spanish bonds, although volumes could thin out as the two countries' 10-year bond yields trade close to 5 percent.

Analysts doubt that the ECB would want to push the yields much below that level to keep politicians motivated to implement austerity.

Copyright Reuters, 2010