LONDON: German government bonds rose at Tuesday's open after rating agency Moody's cut Italy and Spain among others and warned it may do the same to France, the UK and Austria.
The move curtailed a modest rally in risk assets seen after Greece's parliament approved reforms needed to qualify for a bailout and avoid an unruly default and may weigh on the euro zone's lower-rated bonds.
Moody's late on Monday cut by one notch the ratings of Italy, Portugal, Slovakia, Slovenia and Malta and downgraded Spain by two notches saying it was worried about Europe's ability to undertake the kind of reforms needed to address the region's debt crisis.
"Between Moody's and Greece not being a done deal, we're reassessing the recent risk rally," a trader said.
Bund futures were 39 ticks higher at 138.62 with 10-year yields 3.5 basis points lower at 1.899 percent.
Greece has admitted it still faces a tough job in persuading the European Union and IMF to save it from bankruptcy.
Italian paper may see some additional pressure ahead of a sale of up 6 billion euros of bonds, including the three-year November 2014 benchmark and two other bonds maturing in November 2015 and February 2017.
Yields on the three-year paper are set to fall below 4 percent but the sale comes after a T-bill auction on Monday saw unusally low demand, which if not due to technical glitches may indicated demand is becoming strained.
Copyright Reuters, 2012