Bund up before Euro group meeting; Italy eyed

LONDON: German Bund futures rose on Monday as investors were cautious ahead of a meeting of euro zone finance ministers, while political turmoil in Italy and uncertainties over Greece's incoming government provided support for safe-haven assets.

Euro zone finance ministers will speed up work on strengthening their bailout fund on Monday to enhance its market credibility by the end of November, a month early.

Political turmoil in Greece and at home helped drive Italian government bond yields to an euro era high of 6.437 percent last week -- towards levels beyond which funding costs are seen as unsustainable.

While Greek Prime Minister George Papandreou sealed a deal with the opposition on a crisis coalition to approve an international bailout, details remained thin despite an EU ultimatum for Athens to get serious about tackling its problems.

The German Bund future was up 20 ticks at 137.80.

"The 136.38/81 support zone should continue to limit the downside until the Bund breaks above the 138.54 resistance level and rises to at least the September high of 139.19," Societe Generale said in a research note.

Investors would also look towards weekly data from the European Central Bank to gauge the size of their latest bond-purchases in the secondary market -- a policy aimed at keeping Italian and Spanish funding costs more affordable.

The ECB often discusses the possibility of ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said, according to an Italian daily on Sunday.

Italian Prime Minister Silvio Berlusconi has one day left to win over waverers and see off a group of party rebels threatening to bring down his government in a backlash over its failure to adopt reforms to defusse a dangerous debt crisis.

Copyright Reuters, 2011