LONDON: German Bund futures slipped on Tuesday, taking a breather after their full point rally the previous day and before supply from triple-A-rated Netherlands, but losses were limited with peripheral euro zone bonds remaining under pressure.
Focus will be on a Spanish auction of up to 3 billion euros of 3- and 6-month Treasury bills, where borrowing costs are expected to surge by around two percentage points, with no respite from the centre-right Popular Party's emphatic election win on Sunday.
"Spain are moaning about levels of funding, the political mess over how to tackle (the debt crisis). It's a bit more of the same. Liquidity in the market is not good and it could get worse with the (US) Thanksgiving holiday," a trader said.
Jefferies Group Inc became the latest bank to cut its exposure to the debt of Europe's struggling states, saying late on Monday it had reduced its exposure by a further 50 percent.
The companies' executives said the company has reduced gross exposure to debt of Greece, Ireland, Italy, Portugal and Spain by a total of nearly 75 percent since worries first surfaced in early November and now has a net short position of $134 million to those countries' bonds. The December Bund future was last 22 ticks down at 136.93 compared with 137.15 at Monday's settlement.
The line formed by the Nov. 4 and Nov. 11 lows acted as a cap to Monday's gains, pointing to a short-term pullback in Bunds, according to Clive Lambert, technical analyst at Futurestechs. "(But)I don't want to get too excited about prospects for a pullback as we have been in a strong bull trend of late," he said.