EURO GOVT-ECB buys bonds, keeps periphery yields in check

* Ireland, Portugal outperform as ECB keeps buying bonds

* Real money investors seen selling Irish, Spanish debt

* Bunds pare losses on below-forecast U.S. jobs data

(Updates market figures, trader quote)

By Anna Yukhananov

LONDON, Dec 3 (BestGrowthStock) – Risk premiums on government bonds
issued by Ireland and Portugal fell on Friday, as European
Central Bank bond purchases eased some concerns about the euro
zone debt crisis spreading.

German Bund futures (FGBLc1: ) fell as peripheral euro zone
bonds advanced, though they pared some of their losses after
data showed U.S. non-farm payrolls rose much less than expected.

ECB purchases continued from the previous session, with
traders saying buying was more active than usual during
Thursday’s news conference by ECB President Jean-Claude Trichet,
when he made no commitment to expand the bond-purchase
programme, disappointing market expectations he would do so.

“It seems the ECB has managed to contain it (spreads
widening) for the moment,” said David Keeble, global head of
fixed income strategy at Credit Agricole. “It’s getting to
levels which aren’t threatening the debt sustainability.”

The Portuguese bond yield spread versus German debt
(PT10YT=TWEB: )(DE10YT=TWEB: ) tightened 33 basis points on the day
to 323 bps, its narrowest since late August and more than 150
basis points below the euro lifetime high of 480 bps seen
earlier this month.

The equivalent Irish spread (IE10YT=TWEB: )(DE10YT=TWEB: )
tightened by 43 bps to 565 bps. The cost of protecting
peripheral euro zone debt against default also fell.

Italian and Spanish bond yields spreads were largely flat on
the day, reversing an earlier tightening that had seen the
10-year Spanish yield (ES10YT=TWEB: ) fall below 5 percent for the
first time in 10 days.

“If (the ECB) are focusing in a targeted manner, it’s on
Portugal and Ireland, and it’s not going to be on Italy,” said
Chris Scicluna, deputy head of economic research at Daiwa
Capital Markets.

“What we saw the last couple of days was a bit more hope
over substance in terms of supporting (Italian and Spanish)
markets.”

SPREADS VULNERABLE

Some investors were also taking advantage of low Italian and
Spanish debt yields to sell their holdings, a trader said,
keeping spreads from narrowing further.

“There hasn’t been the liquidation of positions in Italy and
Spain that you’ve seen in Ireland and Portugal over the last few
weeks and months,” the trader said.

“As things have tightened in the last couple of days, today
we reached levels where some guys came out of the woodwork and
looked to get out of some of their Spanish and Italian
exposure.”

Analysts said the ECB’s presence in the market did not
represent the major acceleration of the bank’s bond-buying
scheme some had predicted, and that spreads remained vulnerable
to fresh widening.

“It remains to be seen whether the ECB is really picking up
the pace of bond buying, but I wouldn’t count on it. They’ve
certainly shown a lack of appetite in the past,” said Everett
Brown, strategist at IDEAglobal in London.

“Considering the underlying problems in terms of fiscal
challenges and creditworthiness, and I doubt investor confidence
will really return this side of the new year, I fear spreads may
start to rebound again.”

Details of the ECB’s bond purchases, due to be released
early next week, will not include all bonds purchased on
Wednesday, Thursday and Friday as the data is based on trades
which may take up to three days to settle.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro zone debt timeline: http://link.reuters.com/nyx95q Take a Look on euro debt crisis: [ID:nLDE68T0MG] Euro zone crisis coverage http://r.reuters.com/hus75h Graphic on debt crunch: http://r.reuters.com/zem66q ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Bund futures (FGBLc1: ) settled 28 ticks down on the day at
126.19, having earlier reached their lowest since mid-May.

The 2/10-year German bond yield gap widened by eight bps to
202 bps, its widest since late June before tightening slightly
towards the European settlement. Yields also rose across the
10/30-year German bond curve, with the 30-year Bund yield
(DE30YT=TWEB: ) up 10 bps on the day to 3.38 percent.
(Additional reporting by William James; editing by Susan
Fenton)

EURO GOVT-ECB buys bonds, keeps periphery yields in check