LONDON: German Bund futures dipped on Monday, extending Friday's sell-off, with dealers expecting a volatile run into September, when the European Central Bank has flagged the chance of bolder action to curb Spanish and Italian borrowing costs.
Bund futures saw their biggest daily fall since October 2011 on Friday on the back of better than expected US data and investors overcoming their initial disappointment that the ECB's monthly policy meeting did not approve an immediate return to outright bond-buying.
ECB President Mario Draghi outlined a plan to buy debt in cooperation with the euro zone bailout funds - but not before September, and only if countries ask to use the euro zone rescue funds and accept strict conditions and supervision.
He has not yet convinced Germany's Bundesbank to sign up to the plan, but the news has been enough to give debt markets pause for thought and Bund futures fell 2 ticks to 142.93, having fallen more than 200 ticks at one point on Friday.
"I guess everybody is keeping their positions (minor) because we are seeing roller coaster moves that nobody can explain," Charles Berry, trader at Landesbank Baden-Wurttemberg said.
"Volatility will be high, that's the only thing I can guarantee."
Bunds remain supported by concerns that Spain will eventually need a full state bailout and investors' need to find a safe haven from the crisis. That uncertainty could favor a sale of 10-year German debt on Wednesday, even if yields in the secondary market remain close to historically low levels.
Ten-year Spanish government bond yields came off euro-era highs last week but on Friday held close to 7 percent danger levels. Prime Minister Mariano Rajoy signaled for the first time that day that he may seek a full-blown aid package but said he had not yet made a decision on the matter. Spain has time to wait for clarity on what such aid would involve because it has already covered the majority of its debt needs for the year, Economy Minister Luis de Guindos said in a newspaper interview published on Sunday.
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