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Markets

Bunds steady before German debt auction

LONDON: German government bonds opened little changed on Wednesday, with supply pressure from an upcoming 10-year debt a
01 Feb 2012

germany-bondsLONDON: German government bonds opened little changed on Wednesday, with supply pressure from an upcoming 10-year debt auction offsetting Tuesday's weak US consumer confidence data and worries about Greece and Portugal.

Greek Finance Minister Evangelos Venizelos said talks with private creditors on the bond swap deal, which is vital to avoid a chaotic default, were "one formal step away".

Germany plans to sell up to 5 billion euros worth of 10-year government bonds later in the day in a test of whether safe-haven demand is strong enough for Bund yields to revisit their record lows in the near-term

"The last one went well, but we're at fairly elevated (prices) so there might be a little struggle up here so we'll watch it," one trader said.

"But I think there's enough demand out there for core markets so I think it would be alright without being spectacular."

At 0711 GMT, Bund futures were 3 ticks higher at 139.75, with 10-year yields steady at 1.79 percent. Bund yields have been largely stuck within a 1.75-2 percent range this year, not far away from a record low of 1.637 percent hit in September 2011.

Portugal also taps the market for three- and six-month treasury bills, targeting a total issuance size in the 1.25-1.5 billion range.

Portuguese bond yields hit record euro-era highs this week, prompting the European Central Bank to step into the market, as investors became increasingly worried that it may follow in Greece's footsteps and eventually restructure its debt.

The bill market, however, finds solid demand from domestic banks, who use the paper as collateral to get ECB funding.

"We fully expect the Portuguese debt agency to raise the necessary funds," Credit Agricole rate strategist Orlando Green said in a note.

"But a sub-5 percent average yield and cover ratios comfortably above two (times the amount on offer) would reinforce market confidence about Portugal's capability to raise funds through issuing short-term paper."

Copyright Reuters, 2012