EURO GOVT-Irish yields rise, Bunds hold under 3 percent

* Irish spreads widen after EU approves bank bailout

* 10-year Bund yield tests 3 percent level

* Moody’s puts Portugal on review for possible downgrade

By Kirsten Donovan

LONDON, Dec 21 (BestGrowthStock) – The spread between Irish and
German government debt yields widened on Tuesday after the EU
allowed Ireland to recapitalise three of its banks.

European Union competition regulators temporarily cleared
billions of euros in state aid for Anglo Irish Bank [ANGIB.UL],
Allied Irish Bank (ALBK.I: ) and Irish Nationwide Building Society
[IRNBS.UL] [ID:nBRQ010058].

Meanwhile, a group of subordinated creditors in Anglo Irish
Bank [ANGIB.UL] agreed to take an 80 percent writedown on the
value of their holding, successfully concluding the nationalised
lender’s controversial debt restructuring plan.[ID:nLDE6BK09V]

The Irish/German 10-year bond yield spread (IE10YT=TWEB: )
(DE10YT=TWEB: ) widened to 617 basis points from around 590 bps at
Monday’s settlement, as Irish debt underperformed.

“It’s the link between the financial sector and the
sovereign. What we’ve had in the last few weeks is evidence that
there will be a forced restructuring of the subordinated debt —
the fear is, of course, someone has to pay,” said Steven Major,
global head of fixed income research at HSBC in London.

Traders said the European Central Bank had focused its scant
bond buying activity on Irish debt on Tuesday, whereas it had
targeted Portuguese debt more in recent weeks.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphics: Euro zone debt struggle BREAKINGVIEWS-Moody's warning is too soft [ID:nLDE6BK0PY] More on euro zone debt [nLDE6T0MG] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Portuguese spreads were wider, but the move was less
dramatic, after Moody’s Investors Service put Portugal’s A1
credit ratings on review, with the possibility of a one- or
two-notch downgrade. [ID:LIS002533]

“People are expecting further actions from the ratings
agencies anyway,” said Charles Diebel, head of market strategy
at Lloyd’s TSB in London.

He said a lack of liquidity in the marketplace, as the
holidays and the year end approached, had also contributed to
the muted reaction.

Moody’s said on Tuesday that it expected EU policymakers to
do whatever was necessary to prevent a sovereign default, adding
that all its euro zone sovereign ratings with the exception of
Greece’s remained investment grade, consistent with its current
view that the risk of a default was very small.

Bund futures (FGBLc1: ) settled 13 ticks lower at 125.17.

The 10-year Bund yield (DE10YT=TWEB: ) was 1.4 basis points
higher at 2.98 percent, with two-year yields (DE2YT=TWEB: ) up
half a basis point at 1.04 percent.
“Ten-year yields are hanging around 3 percent and the big
number yield levels are the targets the market will gravitate
towards, although there are the risk of big moves because of the
diminishing liquidity,” said Credit Agricole rate strategist
Orlando Green.

Portugal’s 10-year bond yield was up 13 bps at 6.71 percent,
while Spain’s 10-year yield rose 2 bps to 5.552 percent.

Meanwhile, France said it would trim its medium- and
long-term debt issuance to 184 billion euros, net of buybacks,
in 2011 thanks to repurchases this year and a slimmer budget
deficit [ID:nLDE6BK0QO].

EURO GOVT-Irish yields rise, Bunds hold under 3 percent