LONDON: German government bonds slipped at Wednesday's open before a 10-year Bund auction, with equity markets set to receive a boost after Chinese data signalled a growing economic recovery.
Financial markets are likely to remain cautious, however, as sentiment towards the region's peripheral issuers deteriorated on Tuesday after Moody's downgraded the credit ratings of five Spanish regions.
That change in sentiment is expected to boost demand for Germany's safe-haven paper at a bond sale on Wednesday.
Germany will sell 4 billion euros of 10-year bonds after its two previous auctions at the maturity failed to attract enough bids to cover the amount on offer.
"With yields still at the upper end of the recent range, we see value in the bond (on offer) in outright terms," Commerzbank strategists said in a note.
"Given the attractive levels in combination with recent pick-up in risk-aversion we expect a good take-up of today's auction and consider initial weakness today as a buying opportunity."
December Bund futures were 10 ticks lower at 140.25 after rallying on Tuesday.
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