EURO GOVT-No let-up for peripheral debt, Bunds stabilise

* Portuguese, Spanish yield spreads widen, ECB buying low

* Bund yields steady after recent rise, investors cautious

By William James

LONDON, Dec 10 (BestGrowthStock) – Yields on Portuguese and Irish
debt rose on Friday with traders reporting subdued European
Central Bank purchasing and few other buyers willing to pick up
bonds issued by the euro zone’s embattled peripheral countries.

German debt steadied after a recent selloff with Bund
futures (FGBLc1: ) broadly flat on the day at 124.98 while 10-year
yields (DE10YT=TWEB: ) edged up 1 bps to 2.951 percent.

The difference between Portuguese (PT10YT=TWEB: ) and German
10-year yields widened 18 basis points on the day to 346 bps
with traders pointing to little buying interest from the ECB.

“The ECB is only coming in to buy tiny scraps at the moment,
official buying is very limited. They have been in the market in
Portugal and Ireland today buying clips of 10 million across the
curve,” a trader said.
The equivalent yield spread for Irish debt (IE10YT=TWEB: )
widened to 540 bps, out 9 bps on the day.

“There’s only one driver that drives spreads tighter and
that is ECB buying and it’s not really there so we just drift
wider,” the trader said.

ECB bond buying has been the only line of defence against
widening peripheral spreads in the absence of co-ordinated
political action, but traders said the pace of buying, which had
increased since the end of last week, had tapered off.

Ten-year Spanish bonds (ES10YT=TWEB: ) underperformed, with
yields up 13 bps at 5.45 percent ahead of auctions next week.


Bund futures failed to hold onto early gains as investors
exited trades going into the weekend and were wary of taking on
new positions in thin liquidity.

“The year-end environment is not providing material support
for Bunds which suggests systemic and fundamental risks are
still driving forces,” said Lena Komileva, head of G7 economics
at Tullett Prebon, adding a rise in riskier assets was
undermining support for safe-haven bonds.

Graphic on the euro zone debt crisis

Analysts said that although economic fundamentals pointed to
higher euro zone and U.S. yields, this week’s selloff, which
pushed 10-year Bund yields above 3 percent and was aggravated by
a selloff in U.S. Treasuries on news of an extension of U.S. tax
cuts, had been overdone.

Bund futures marked record highs of 134.77 in September but
have sold off sharply since, partly on concerns over how much it
would cost Germany if more euro zone countries needed financial

“The growing positive correlation between core and
peripheral bonds maintains concerns about the possibility of a
negative feedback loop if German collateral is extended to
contain the spreading sovereign debt crisis in 2011,” Tullet’s
Komileva said.

European Union leaders meet next week to discuss the debt
crisis with investors focused on divisions among European Union
leaders, and with relatively low expectations of progress
towards a plan of action.
(Editing by Susan Fenton)

EURO GOVT-No let-up for peripheral debt, Bunds stabilise