LONDON: German Bund futures fell while Italian debt rallied on Monday after a weekend deal to rescue Spain's banks cooled demand for safe havens to the benefit of riskier assets.
Euro zone finance ministers agreed over the weekend to lend Spain up to 100 billion euros ($125 billion) for its bank rescue fund, allaying some immediate fears of the country's fiscal collapse.
The news lifted Italian bond futures more than a full point in early trade, with Spanish yields expected to fall. But the respite for peripheral euro zone debt was likely to be shortlived before a Greek electionon Sunday which could see the country quit the euro.
"In the short-term the relief sentiment is likely to take the upper hand," said Rainer Guntermann, a strategist at Commerzbank. "For peripheral debt spreads we should see relief for Spain and Italy but we doubt this will be a sustainable trend in the medium to longer run as we come to the weekend we have the risk of the Greek election."
"Spain itself is not out of the woods and in the longer run we could well imagine that its spreads start to widen again."
Bund futures shed 87 ticks to 142.67 compared with 143.53 at Friday's settlement while German 10-year bond yields were seven basis points up at 1.41 percent.
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