LONDON; German Bund futures hovered near their record highs on Thursday as the risk that Greece could leave the euro zone unnerved investors before a closely watched Spanish debt auction later in the day.
Federal Reserve minutes showing several policymakers last month thought the US central bank might need to do more to support the economy offered some relief to investors, and European stocks were seen opening flat as well.
Meanwhile, the European Central Bank has stopped offering liquidity to some Greek banks it does not consider solvent, heightening fears that Athens is on the brink of collapse as it heads into a June election re-run expected to be won by anti-bailout politicians.
The volatile mood bodes ill for a Spanish auction of 1.5 to 2.5 billion euros of 2015 and 2016 bonds. Domestic banks are expected to provide support in the sale given its small size and the short maturities on offer.
But they are likely to demand a higher risk premium, and markets are extremely sensitive to the rise in borrowing costs faced by countries like Spain and Italy, which are among the most exposed to contagion from the Greek crisis.
There are also concerns over Spain's banking sector which is struggling with bad property loans. Clients of troubled Spanish bank Bankia, nationalized last week, have taken out over 1 billion euros from their accounts since last Wednesday, El Mundo newspaper said.
"The Spanish auctions are going to set the tone for today," one trader said. "We're very concerned ... I don't see where the bids are going to come unless we get some magical large domestic interest as we've seen in the past."
Bund futures were last 5 ticks lower on the day at 143.13, having hit record highs of 143.69 in both Monday's and Wednesday's sessions.
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