EURO GOVT-Peripheral risk premiums fall on ECB bond-buying

* Portugal, Ireland outperform as ECB continues bond-buying

* Yield spreads still vulnerable to widening in medium-term

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

By William James

LONDON, Dec 3 (BestGrowthStock) – Risk premiums on government bonds
issued by Ireland and Portugal fell on Friday, driven by
European Central Bank bond-buying, though below-forecast U.S.
jobs data curbed some investor risk appetite.

Bund futures (FGBLc1: ) remained slightly lower on the day,
but pared losses by more than half a point after U.S. non-farm
payrolls data came in well below expectations, stoking
safe-haven demand.

Traders said the ECB bought Irish and Portuguese bonds on
Friday, though volumes were thin.

“It’s not massive, but we’ve seen them buying 10-year
Portugal and Ireland,” a trader said.

Purchases in the previous session had also helped drive
yields on peripheral debt lower. Buying was more active than
usual, traders said, during ECB President Jean-Claude Trichet’s
news conference on Thursday at which he made no commitment to
extend the bond-purchase programme, launched in May to help calm
the debt crisis.

The Portuguese (PT10YT=TWEB: ) bond yield spread versus German
debt tightened to 43 basis points to 313 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 (IE10YT=TWEB: ) spread tightened by 43
bps to 565 bps.

Italian and Spanish bond yields spreads were flat on the day
reversing an earlier tightening, which 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 days was a bit more hope over
substance in terms of supporting (Italian and Spanish) markets.”

Analysts said the ECB’s presence in the market did not
represent the major scaling-up 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 term 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.

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What can the ECB do? [ID:nLDE6AS0F6]

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

U.S. payrolls preview http://r.reuters.com/veg48q

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

U.S. PAYROLLS

Bund futures (FGBLc1: ) were flat at 126.46, having earlier
reached their lowest since mid-May.

U.S. employment increased less than expected in November and
the jobless rate jumped to a seven-month high of 9.8 percent,
dampening hopes for a self-sustaining economic recovery.

“This is definitely a sign that the U.S. labour market
recovery is not on track and is not improving … compared to
expectations this is an awful labour market report,” said
Kornelius Purps, strategist at Unicredit in Munich.

“I think there’s a good chance that we are closing today on
a substantially firmer tone in the Bund market and that this
sentiment will carry over into next week,” Purps said.

Two-year German yields (DE2YT=TWEB: ) were down 1.2 bps at
0.86 percent and the 10-year yield (DE10YT=TWEB: ) was up 1.7
basis points at 2.83 percent.
(Additional reporting by Anna Yukhananov; editing by Stephen
Nisbet)

EURO GOVT-Peripheral risk premiums fall on ECB bond-buying