LONDON: German Bund futures pushed higher on Wednesday with the rest of the euro zone government bond market seen under pressure on investor fears the euro zone debt crisis could suck in bigger economies such as France.
The yield premium of French bonds over German Bunds rose to their highest since April on Tuesday and the cost of insuring French debt against default hit record highs on worries it could be engulfed in the sell-off that has lifted Italian borrowing costs to levels seen as unsustainable.
"They (the Euroepan Central Bank) don't seem to want to use the ammunition that's required to stop this at the moment," a trader said.
"Spreads will continue to widen even from these levels untill we get some sort of bazooka-type response which there are no signs of at this point in time."
The Bund future was last 16 ticks up at 138.87 compared with 138.71 at Tuesday's settlement.
The flight to quality could help a German auction of up to 6 billion euros of new two-year debt although the same trader said investors may be sidelined by the ultra-low coupon of 0.25 percent.