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Markets

Bunds steady, upbeat economic data tempered by Greece

LONDON: German Bund futures were steady on Wednesday with markets weighing upbeat corporate earnings and an improving ec
25 Jan 2012

germany-bondsLONDON: German Bund futures were steady on Wednesday with markets weighing upbeat corporate earnings and an improving economic outlook against the uncertainty surrounding ongoing Greek debt talks.

Investor demand for safe-haven German debt has eased over the past four sessions helped by positive economic data and solid performance of the euro zone's lower-rated debt on the back of European Central Bank's recent cash injections.

The German Ifo business sentiment indicator is forecast to give another sign of strength after above-forecast PMI data on Tuesday further dampened demand for low-yielding safe-haven assets.

"If we see a further upward surprise in the Ifo survey, easing fears of a German recession, then I think the 2 percent level is likely to be taken out," said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.

However, with little sign of resolution to Greece's crippling debt problems, 10-year Bund yields were little changed on the day at 2.001 percent, after failing to break decisively above that psychological barrier in recent sessions.

Traders cautioned that with many in the market positioned for an above-forecast Ifo reading, the likelihood of a sharp selloff in Bunds in the near-term was diminished.

Bund futures inched 3 ticks higher on the day to 137.33, finding resistance around the 55-day moving average of 137.42 -- previously a support level that was taken out in falls seen on Tuesday.

GREECE CONCERN LINGERS

Limiting any potential long-term rise in core yields, Greece and its private creditors have yet to strike a deal to write down the country's huge debts -- a crucial step in securing aid funding.

Nevertheless, markets were still anticipating the worst-case scenario of a Greek default would be avoided.

"It doesn't read particularly positive but the market seems to be shrugging it off for now," a trader said. "The risk is that with some of the short-covering and risk-on moves we've had, the market is now a bit more vulnerable to any bad news."

Germany was expected to sell up to 3 billion euros of its 2042 bond without major difficulty, although some analysts warned the bond looked expensive compared with other long-term bonds on the German curve.

The Netherlands successfully sold 30-year debt yesterday, signalling solid appetite for triple-A rated long-term bonds.

Copyright Reuters, 2012