EURO GOVT-Bunds lower; Portuguese yields seen climbing further

LONDON, April 1 (Reuters) – Bund futures opened lower on
Friday, while Portugal’s bond yields were set to test fresh
record highs after news of a larger deficit that may prod the
country ever closer to seeking international aid.

Portuguese bonds were hammered on Thursday, climbing to
fresh euro lifetime highs as the country missed its 2010 budget
deficit target. [ID:nLDE72U17E]

Portugal’s IGCP debt agency will hold an extraordinary
auction at 0815 GMT of up to 1.5 billion euros of 2012 bonds,
saying it was because of “specific demand for that issue.”

“Talk is that it will be heavily underwritten by domestic
(investors),” one trader said.

“It’s only a one-year bond, but will have to see, the bigger
picture … is that Portuguse yields have a fair way to go,
likely to converge with Irish yields.”

At 0601 GMT, the Bund future (FGBLc1: Quote, Profile, Research) was 22 ticks lower at
121.06, continuing a downward trend as investors expect the
European Central Bank to hike interest rates next week.

Lisbon plans to auction 7 billion euros of T-bills in the
second quarter. It has to pay back 4.2 billion euros of bonds in
April and 4.9 billion euros in June, with many economists saying
that while the country has raised enough funds for the first
redemption it would have to tap markets under difficult
conditions to meet the second repayment.

Ireland will also be scrutinised after results of its stress
tests on Thursday showed its banks had a 24 billion euro capital
shortfall, comfortably less than the government has set aside
and in line with market expectations.

The mildly positive news was that the ECB suspended
collateral requirements for loans to Irish banks, but impact on
bonds market is seen limited as investors are almost certain
Ireland’s credit rating will be downgraded in the near future.
(Reporting by Marius Zaharia; Editing by Patrick Graham)

EURO GOVT-Bunds lower; Portuguese yields seen climbing further