Bund consolidate December gains, remain supported

LONDON: German Bund futures slipped on Tuesday as December's sharp rally faded, but the euro zone's crippling debt crisis was expected to limit falls as refinancing pressure grows on the bloc's lower-rated sovereigns.

Bund futures were 24 ticks lower at 137.95, with the 10-year benchmark yield 1.5 basis points higher at 1.92 percent.

The move in futures adds to a fall in the previous session, but underlying demand for the relative safety and liquidity of German debt was set to remain supportive as the region's debt crisis continues to fuel low-risk investment strategies.

Bund futures rallied more than 5 points in December, to within sight of November's record high of 139.58.

"The consolidation in Bunds following the turn of the year could still run another day," said Commerzbank strategists in a note, but added that any falls were likely to be short-lived.

"Next week - at the latest - the focus should shift to the debt problems of the euro zone periphery again with the Italian and Spanish bond auctions scheduled."

Italy's borrowing costs, hovering near the 7 percent level, are a crucial gauge of sentiment with the country having to refinance more than 100 billion euros of debt repayments in the first quarter of the year.

Markets will also look to see whether banks use a huge 489 billion euro injection of three-year loans from the European Central Bank to buy Italian and other lower-rated debt, or continue to deposit the cash at the ECB and pay down their own debts.