EURO GOVT-Bund yields pulled higher by U.S. Treasury selloff

* Bunds dragged lower by renewed slide in Treasuries

* Periphery stays pressured ahead of EU leaders’ meeting

* ECB releases latest ECB bond-buying numbers

By Kirsten Donovan

LONDON, Dec 13 (BestGrowthStock) – German government bonds fell on
Monday, taking their lead from a renewed slide in U.S.
Treasuries on prospects of higher growth and bigger deficits in
the United States.
Ten-year Treasury yields (US10YT=RR: ) hit a six-month high,
in turn briefly pushing 10-year Bund yields above 3 percent.

“Essentially investors have turned more positive on the U.S.
economy and Bunds are caught up in the U.S.-led selloff in core
markets,” said Nick Stamenkovic, rate strategist at RIA Capital
Markets.

“But there is reasonable value in Bunds around 3-3.10
percent because the growth picture in Europe, apart from
Germany, is not as supportive as in the U.S.”

Treasuries underperformed, pushing the 10-year yield spread
over Bunds to its widest since mid-November at 41 basis points.

“The euro zone periphery is a little bit off the radar
still,” said a trader. “The focus is on the core markets,
particularly the U.S. as we start the Christmas trading period.”

Thin volumes over the holiday period tend to aggravate
movements in yields and prices.

The trader said the selloff could have further to run,
noting that U.S. two-year yields had almost doubled in December
2009 to above 1 percent, before giving back much of the gains in
January, and analysts said the move to higher yields may be a
near-term trend. [ID:nN10596701]

March Bund futures (FGBLc1: ) were 13 ticks lower at 124.85,
after hitting their lowest since early May at 124.38 and 10-year
yields (DE10YT=TWEB: ) were half a basis point higher at 2.96
percent.

Two-year German yields (DE2YT=TWEB: ) were up 2 bps at 1.096
percent, which pushed the 2/10 yield curve down to 187 basis
points, around 20 bps flatter over December.

Analysts saw little relief for bonds issued by the euro
zone’s highly indebted states before a meeting of European Union
leaders later this week. The EU summit is expected to pave the
way for private sector investors to shoulder losses in case of a
sovereign debt restructuring under a new stability mechanism
from 2013. [ID:nLDE6BA0BE]

Yields on most euro zone government bonds rose but, with
Bunds selling off too, yield spreads were little changed.

And with Germany and France opposing more concrete steps to
shore up the region, such as common euro zone bonds or an
increase in the size of funds available to struggling countries,
the market is not expecting game-changing decisions at the EU
summit.

“The discordant approach is unlikely to change, leaving an
agreement remote that could effectively address solvency issues
and lead to a closer fiscal union in EMU,” Commerzbank rate
strategist Christoph Rieger said.

The Financial Times reported that European officials are
considering plans to use the euro zone’s 440-billion-euro rescue
fund to buy bonds of distressed governments. [ID:nLDE6BC015]

A German government spokesman, however, said that was not a
good idea. [ID:nBAT005872]

The ECB has so far been the main buyer of illiquid debt
issued by Ireland and Portugal and will release its latest
purchasing data on Monday.
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Graphic on ECB bond buying http://r.reuters.com/wum27q
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The figure will include buying from the end of the week
before last when traders said the pace of buying had picked up,
before fading again into the end of last week.

“In theory, a volume in the vicinity of 2 billion or above
should thus calm markets,” Commerzbank’s Rieger said.

SPANISH TEST

The main test of sentiment towards peripheral issuers this
week will come when Spain sells up to 3 billion euros of 2020
and 2025 bonds on Thursday. Economy Minister Elena Salgado said
last week that Spain’s cost of borrowing would probably rise at
the sale.

“There is significant uncertainty surrounding Spain’s
auctions this week. We attribute much of last Friday’s Spanish
underperformance to this, as there was no obvious concession in
the curve … before that session,” Credit Agricole rate
strategists said.

Spanish 10-year yields (ES10YT=TWEB: ) were 2 bps higher at
5.47 percent.

(Graphic by Scott Barber; Editing by Susan Fenton)
([email protected], +44 20 7542
8675, editing by Nigel Stephenson))

EURO GOVT-Bund yields pulled higher by U.S. Treasury selloff