EURO GOVT-Bunds steady; Ireland to stay pressured

LONDON, March 31 (Reuters) – German government bonds were
steady on Thursday and Irish bond yields were likely to remain
elevated with expectations of a credit rating downgrade
offsetting a radical restructuring of the banking sector.

The Irish Independent newspaper reported that the Irish
government would announce the restructuring after the results of
bank stress tests are published on Thursday. The paper said they
would show the four main banks need 20-25 billion euros in
additional capital. [ID:nWLA6824].

June Bund futures (FGBLc1: Quote, Profile, Research) were flat at 121.43. Two-year
bond yields (DE2YT=TWEB: Quote, Profile, Research) were down a basis point at 1.75 percent
with 10-year yields (DE10YT=TWEB: Quote, Profile, Research) down just over half a basis
point at 3.334 percent.

Ten-year yields have risen around 40 basis points in the
first quarter but have struggled to break above 3.34 percent,
the top of the range seen over the last two months.

Traders said investors were largely sidelined ahead of
Friday’s U.S. employment report, a strong driver of short-term
market direction, and may struggle to put on longer-term
positions even after it.

“The market still isn’t sure which way it wants to go, if
the data starts coming off and it looks like interest rate hike
expectations have been overdone then yields are not necessarily
going higher,” said one trader.

Euro zone flash inflation data released at 0900 GMT will
reinforce expectations for an April interest rate rise if it
comes in line with forecasts for a 2.3 percent rise.

The Irish government has set aside about 35 billion euros
for its debt-ridden banks and the figure reported by the Irish
independent is roughly in line with earlier estimates by
analysts [ID:nLDE72T20R]. Most analysts expect any potentially
good news to be countered by a ratings downgrade after Standard
& Poor’s cut Portugal and Greece earlier this week.

The rating agency cited the risks the countries’ debts to a
new European bailout fund would be repaid before bond investors,
a risk that also applies to Ireland.

EURO GOVT-Bunds steady; Ireland to stay pressured