EURO GOVT-Bunds dip, tension high for euro zone periphery

* Peripheral, core euro zone government bond yields rise

* No new steps to counter debt crisis, tension remains high

* Ten-year Bund yields not seen topping 3 pct

By William James

LONDON, Dec 7 (BestGrowthStock) – Euro zone core and higher-yielding
debt came under pressure on Tuesday, with the lack of fresh
crisis-fighting measures keeping peripheral tension high, while
weak U.S. Treasuries weighed on demand for German Bunds.

Euro zone finance ministers on Monday chose to stand by
their action so far against the currency bloc’s mounting banking
and debt problems, confounding those in the market calling for
an enlarged financial safety net. [ID:nLDE6B40EJ]

“We’ve already seen a retracement of Thursday and Friday’s
(peripheral) performance and official buying was more muted
yesterday. This should compound that disappointment and we would
expect further profit taking and sellers to come into the
market,” a trader said.

Traders said early volumes were thin, with Portuguese and
Irish debt echoing weakness in Bunds, leaving 10-year yield
spreads over the German benchmark little changed on the day at
323 bps and 565 bps respectively.

The Bund future (FGBLc1: ) was 47 ticks lower at 126.10,
keeping pace with U.S. Treasuries which came under pressure
ahead of debt supply.

Talks will continue later in the day as finance ministers
from the wider European Union meet to discuss the economy, with
markets still looking for details on a permanent crisis
management mechanism to stabilise the region.

However, analysts said expectations of an increase in the
size of region’s 750 billion euro ($995 billion) European
Financial Stability Facility (EFSF) or progress towards issuing
a common euro zone bond could be misplaced.

“My gut feeling is that spreads are going to carry on
widening for a while yet,” said Chris Scicluna, deputy head of
economic research at Daiwa Capital Markets.

“Anyone in the market who is expecting someone, somewhere to
fund more support for the periphery, whether it be the EFSF or
the ECB — they’re going to be disappointed.”

An increase in bond purchases by the European Central Bank
has contained some of the recent volatility in higher-yielding
euro zone debt yields.

But, with the ECB divided over the role of the bond-buying
programme, and Germany raising strong opposition to increasing
the bailout fund or issuing a common euro zone bond, any swift
resolution looks unlikely.

Despite a weaker start to the session, the outlook for
German debt was seen as positive in the medium term, with its
safe-haven status seen keeping 10-year yields below the
psychological 3 percent barrier.

“I would expect ongoing disappointment from the political
arena and ongoing deterioration in secondary market liquidity in
everything else but Bunds. This should be an underlying positive
factor for the Bund sector,” said David Schnautz, rate
strategist at Commerzbank in London.

The 10-year German bond (DE10YT=TWEB: ) yielded 2.902 percent
in early trade, up 5.1 basis points, while the two-year Schatz
yield (DE2YT=TWEB: ) rose 2 basis points to 0.833 percent.


Ireland, the second recipient of a bailout from the European
Union and International Monetary Fund this year, will present
its austerity budget to parliament later in the session.

“The budget is set to pass, which would not be that much a
big deal for markets, but if we get any major hiccups, that
could certainly have negative effects not only on Irish, but
also on the other usual suspects,” Schnautz said, referring to
other countries with heavy national or corporate debt burdens
such as Portugal, Spain and Greece.

(Editing by Ruth Pitchford)

EURO GOVT-Bunds dip, tension high for euro zone periphery