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Markets

Bunds higher as euro zone crisis rumbles on

LONDON: German government bonds opened higher on Monday with political wrangling over the euro zone debt crisis showing
21 Nov 2011

 LONDON: German government bonds opened higher on Monday with political wrangling over the euro zone debt crisis showing no signs of abating and a US Congressional committee looking set to miss a deficit reduction deadline.

Spanish bonds may get some respite, however, if the country's newly-elected centre-right People's Party act fast to shore-up investor confidence , while a lack of longer-dated peripheral bond issuance may stem the sell-off for now.

"We need to hear a plan from Spain," said a trader.

The situation in the euro zone remains fragile. Greece's new Prime Minister has to convince the IMF and the EU to give his country the 8 billion euros it needs to avoid a mid-December default, and one of his coalition backers refused to give a written pledge to support reforms over the weekend.

December Bund futures were 29 ticks higher at 139.79.

"Bunds didn't trade well last week, but a lot of that was a move out of anything European," said the trader.

"Nothing's really changed and liquidity is getting progressively worse. It feels like year-end is going to be particularly bad and that will just exaggerate moves either way."

Benchmark 10-year yields were 2 basis points lower at 1.944 percent.

ECB bond buying data which covers the week until last Tuesday will be closely watched with officials opposed to calls for the central bank to buy unlimited amounts of paper.

Traders have reported that the central bank stepped up its purchases over the period however.

An apparent failure by US politicians to agree on deficit reduction was also hurting sentiment, with European equity markets set to open lower.

The US congressional deficit-reduction committee is set to formally announce its three-month-long effort to bridge partisan differences over taxation and spending has failed, aides told Reuters.

Copyright Reuters, 2011