EURO GOVT-Bunds dip after Portuguese aid request, ECB eyed

LONDON, April 7 (Reuters) – German government bonds edged
lower on Thursday after Portugal became the third euro zone
country to seek financial aid but yields on Portugusese bonds
were set to see only limited relief and could yet push higher.
Widely expected negotiations for financial assistance will
take place as a campaign kicks off for a June 5 snap general
election [ID:nLDE7352EI], leaving investors watching to see if a
line will finally be drawn under the euro zone’s debt crisis or
if speculators will turn on Spain.

“The bigger question now is whether the markets will turn
its attention to Spain,” Michael Hewson, market analyst at CMC
Markets, said in a note.

Yields on Portuguese government bonds fell by up to 35 bps
on Wednesday, which traders said suggested there may have been
some anticipation of the event ahead of an official statement
late in the day.

But the fall may be short lived if past events are an
indicator – Greek and Irish yields resumed their rise shortly
after bailouts were agreed.

“A bailout is somewhat in the price already, although you
could argue it’s come a bit sooner than expected,” said a
trader.

“Maybe it takes away a bit of uncertainty away but generally
we see these knee-jerk positive reactions which then fade. It’s
all going to be a bit of a side-show to the ECB today anyway.”

The European Central Bank meets later in the day and is
expected to raise interest rates for the first time since
mid-2008.

June Bund futures (FGBLc1: Quote, Profile, Research) were 10 ticks lower at 12.52.
Two-year bond yields (DE2YT=TWEB: Quote, Profile, Research) were up a basis point at 1.852
percent, with 10-year yields (DE10YT=TWEB: Quote, Profile, Research) up a similar amount
at 3.439 percent.

France will sell up to 9.5 billion euros of bonds and Spain
will auction 3.5-.4.5 billion euros of paper on Thursday.

EURO GOVT-Bunds dip after Portuguese aid request, ECB eyed