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Markets

Bunds rise on recession, crisis contagion fears

LONDON: Bunds opened higher on Wednesday after economic data out of China and the United States raised fresh worries abo
23 Nov 2011

german-bondsLONDON: Bunds opened higher on Wednesday after economic data out of China and the United States raised fresh worries about a global recession, while the euro zone crisis showed no signs of abating, with Belgium moving into focus.

Data showing China's factory sector shrank the most in 32 months in November and Tuesday's lower-than-expected US economic growth figures for the third quarter caused heavy losses for stocks and sent investors after safe havens.

In Belgium, newspaper De Standaard said, citing no sources, that fresh talks were taking place over an existing Franco-Belgian rescue deal for Dexia, stirring worries of a potentially larger fiscal burden for France, whose triple-A credit rating is increasingly seen at risk.

Belgium's Finance Minister Didier Reynders denied the deal would be dismantled.

The highly-indebted country suffered a further blow on Tuesday when its lead negotiator to form a government resigned, in a move that risked derailing a near 18-month search for an administration.

At 0706 GMT, Bund futures were 31 ticks higher at 137.56. German 10-year yields were 2.6 basis points lower at 1.885 percent.

"Stocks have been absolutely smashed overnight," one trader said. "Nothing really changed (in the euro zone). It's still a mess. Trade is going to be very thin from here on and it could be very volatile."

Upcoming debt supply was capping Bund gains.

Germany plans to issue up to 6 billion euros of new 10-year Bunds later in the day. Low yields have recently caused some auctions to attract less demand than the amount on offer, but euro zone problems are likely to remain broadly supportive for German debt in the near-term.

Little progress towards finding a solution to the crisis is likely to keep debt issued by countries such as Italy or Spain under selling pressure. France is likely to suffer as well due to its exposure to the two countries.

Markets were bracing for flash manufacturing surveys for the euro zone, with further clues that the region was heading towards a recession likely to be supportive for Bunds.

Copyright Reuters, 2011