EURO GOVT-Ireland under pressure, Bunds hit by cost concerns

* Irish/German 10-year spreads hit new euro lifetime high

* German Bund futures erase gains on fears of bailout costs

* Yield curve steeper as flight-to-quality boosts Schatz

By Anna Yukhananov

LONDON, Nov 26 (BestGrowthStock) – The yield spread between Irish
government bonds and German Bunds hit a euro-lifetime high on
Friday, and other peripheral bond yields hovered near record
highs on fears the euro zone debt crisis is widening.

Spreads tightened slightly late in the day though, with the
exception of Irish spreads, after Portugal passed its 2011
austerity budget and traders said the ECB was buying peripheral
euro zone government bonds, adding further support.

German Bund futures were broadly flat on the day, as
flight-to-safety flows spurred by the currency bloc’s debt
crisis gave way to worries Germany would have to shoulder the
cost of future euro zone bailouts.

Concerns about Ireland continued to mount following reports
senior bondholders may have to shoulder the burden of rescuing
Irish banks. [ID:nLDE6AP0BY]

The premium investors demand to hold Irish government bonds
[IE10YT=TWEB] over benchmark Bunds widened to 697 basis points.

“Yet again, we’ve shot ourselves in the foot this morning
with the front page of the Irish Times talking about how senior
bondholders may have to burden-share in relation to the Irish
banks,” a trader said.

“If the story is true, Spain and Portugal and Italy and
everybody will be feeling the effects of it.”

The Bund future (FGBLc1: ) settled 6 ticks higher at 127.35,
after trading in a wide 91-tick range.

“The market hasn’t made up its mind yet whether this whole
uncertainty and debt crisis will be good for Bunds going
forward,” said Michael Leister, strategist at WestLB.

“Germany may ultimately be dragged into this as well in
terms of having to bail out their neighbours. This money
obviously has to come from somewhere.”
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Take a Look on euro zone crisis [ID:nLDE68T0MG] Graphic on euro zone struggle with debt Graphic comparing debt-heavy euro zone economies Graphic of euro's correlation with Greek, Irish bond spreads ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Peripheral spreads, apart from Ireland, tightened in late

The 10-year Portuguese yield (PT10YT=TWEB: ) fell from the
day’s highs after Portugal’s parliament approved its 2011
austerity budget, reassuring some investors. [ID:nLDE6AP0F4]

Earlier in the day, a Financial Times Deutschland report
said that some euro zone countries and the European Central Bank
(ECB) were urging Lisbon to apply for an international rescue
package, though European officials denied the report.

The Spanish/German spread (ES10YT=TWEB: ) hit a record high of
274 bps earlier in the session as investors fretted about which
euro zone country would be next to succumb to bailout funding.

The Spanish spread was last slightly tighter on the day at
253 bps.

In a busy debt supply schedule next week, Spain is expected
to pay higher yields to sell bonds, with Italy, France, Germany,
Belgium also coming to market. [EURODEBT/O]


Analysts said it was unlikely further details about
Ireland’s bailout package from the European Union and the
International Monetary Fund, expected this weekend, would calm
market fears about the debt crisis spreading.

“There doesn’t seem to be that much uncertainty left (about
the bailout),” said David Schnautz, an interest rate strategist
at Commerzbank. “Rumours about Portugal getting pushed to also
opt for the rescue mechanism are going to be more closely
watched than the small print for Ireland.”

Market volatility also pushed some risk-averse investors
away from longer duration German debt and into shorter-dated
paper in a classic flight-to-quality move, Schnautz said.

The German yield curve steepened on the day, with two-year
Schatz yields (DE2YT=TWEB: ) 3.4 bps lower at 0.933 percent, while
10-year yields (DE10YT=TWEB: ) were flat at 2.677 percent.
(Additional reporting by Kirsten Donovan and Emelia
Sithole-Matarise; Editing by Susan Fenton)

EURO GOVT-Ireland under pressure, Bunds hit by cost concerns