EURO GOVT-Bunds dip, short end sensitive to ECB tender

* ECB tender eyed as banks repay 200 bln euros of loans

* Technical outlook bearish for Bunds despite recent gains

By William James

LONDON, Dec 23 (BestGrowthStock) – Bund futures were flat to
slightly weaker on Thursday with markets pointing to improved
risk appetite into year end as European stocks extended their
December rally on a brighter global growth outlook.

The Bund future (FGBLc1: ) was two ticks lower at 125.45 and
traded volumes in both core and peripheral euro zone government
debt were low with a well-below-average 38,000 Bund futures
contracts exchanged by 0900 GMT.

Yields at the short end of the German curve could be
sensitive to bank demand for European Central Bank funds at a
13-day loan offering later in the session, which comes as 200
billion euros of long-term ECB funds expire.

A surprisingly strong take-up at Wednesday’s three-month ECB
tender saw two-year bonds outperform.

“I believe that the market will put its focus on the ECB’s
liquidity operations. However, as I doubt that there will be any
significant drain in liquidity, I don’t expect a major market
reaction,” said Niels From, chief analyst at Nordea in
Copenhagen.

Further strong demand would confirm a large liquidity
surplus in the interbank market into the new year, and should
keep short-dated rates pinned down, while weak bidding could see
some of Wednesday’s rally unwind.

The 10-year German bond (DE10YT=TWEB: ) yielded 2.951 percent,
down 0.6 basis point on the day while the two-year Schatz yield
(DE2YT=TWEB: ) fell by 2.5 bps to 0.931 percent.

In recent sessions Bund futures have regained some of the
large losses seen since November, posting a near 100-tick gain
from last Friday’s close, but the outlook remain bearish
according to technical charts.

The Moving Average Convergence-Divergence indicator, which
measures market momentum, remains firmly below the zero level.

“(This suggests) strength continues to be limited in time
and extent, offering selling opportunities at higher levels,
against what is still a longer-term bearish trending condition,”
said Richard Adcock, technical analysts at UBS.

There was more bad credit ratings news for the euro zone as
Standard and Poor’s lowered its outlook for Slovenia’s foreign
currency credit to negative late on Wednesday. [ID:nN22109688]

A string of negative ratings actions in recent weeks has
kept investors wary of taking on debt from the euro zone’s
higher yielding states.

(Reporting by William James; editing by Nigel Stephenson)

EURO GOVT-Bunds dip, short end sensitive to ECB tender