EURO GOVT-Bunds rise on Korean tension, bargain hunting

* Bunds rise driven by safe-haven flow, U.S. Treasury bounce

* Bund resistance at 125.66, break may signal rise to 127.12

* Periphery steady despite little resolution from EU summit

By William James

LONDON, Dec 20 (BestGrowthStock) – Bund futures rose in line with
U.S. debt prices on Monday with tension in the Korean peninsula
supporting safe haven assets and some investors returning after
a recent sell-off, but low volumes were seen exaggerating moves.

The Bund future (FGBLc1: ) was up 70 ticks at 125.08, in line
with a rise in U.S. Treasury futures (TYv1: ) which started after
European trading hours on Friday, with buyers seen returning to
pick up bargains after a sharp sell-off through December.

“We’ve got a technical correction after the recent sell-off,
geopolitical concerns and the sovereign crisis is still very
much in play as well,” said Credit Agricole rate strategist
Orlando Green.

South Korea’s military have fired dozens of artillery rounds
during a live-fire drill from the disputed island of Yeonpyeong
on Monday, a Reuters witness said. [ID:nTOE6BJ04A]

Green added that although the correction may extend a little
further, German yields were unlikely to stray far from key
reference levels of 1 percent in two-year debt and 3 percent on
10-year bonds.

The 10-year German bond yield (DE10YT=TWEB: ) was 2.966
percent, down 6.3 basis points while the two-year Schatz yield
(DE2YT=TWEB: ) fell 3 basis points to 1.035 percent.

Bund futures were approaching a key resistance level at
125.66, which marks the upper boundary of the short-term
declining channel in place since mid-November. A break above
this could open the door for a rise to 127.12, which acted as a
floor for the contract back in June, according to Societe
Generale charts.

Less than 100,000 Bund futures contracts had been traded by
0900 GMT.

PERIPHERY STEADY

Analysts said the lack of any fresh decisive action from
European leaders at last week’s summit to address the debt and
banking issues dogging the euro zone’s higher-yielding
sovereigns, left uncertainty in the market high.

“They seem to have got to the idea that they need to do
something, but we don’t have something that would make people
turn around and say ‘Ok, that fixes the problem’,” said Charles
Diebel, head of market strategy at Lloyds TSB.

European Union leaders agreed on Thursday to create a
permanent financial safety net from 2013 and the European
Central Bank said it would almost double its capital to cope
with bigger credit risk and market volatility.

Yields on Portuguese (PT10YT=TWEB: ) and Spanish debt
(ES10YT=TWEB: ) were little changed in early trading.

Irish debt (IE10YT=TWEB: ) was also steady relative to Bunds
despite the ECB expressing “serious concerns” over legislation
surrounding its bailout package that could affect the
institution’s liquidity operations in the euro zone.

“If (the ECB) have gone concerns over the seniority of the
collateral that they will take then obviously that’s a problem,
but I don’t think this will be a huge sticking point — I think
some sort of compromise can be hammered out,” Diebel added.
(Reporting by William James; Editing by Toby Chopra)

EURO GOVT-Bunds rise on Korean tension, bargain hunting