EURO GOVT-Periphery squeezed, bailout cost worries hit Bunds

* Investors fear contagion from Ireland, sell peripherals

* German Bund futures fall on worries over bailout costs

* Policymakers say bailout fund size is sufficient

By Anna Yukhananov

LONDON, Nov 25 (BestGrowthStock) – Peripheral government debt yields
rose on Thursday as investor fears that Ireland’s debt crisis
would spread to other euro zone countries refused to subside,
while concerns over the cost of bailout packages hit Bunds.

Ireland and Spain suffered as investors continued to sell
higher-yielding euro zone debt, although thin volumes because of
the U.S. Thanksgiving holiday exaggerated market moves.

Worries about the cost to core issuers such as Germany
associated with bailing out more euro zone sovereigns weighed on
Bund futures, adding to pressure from bullish data on Wednesday.

“You could argue that markets are looking forward and see
Germany shouldering the risks in the future. A bailout could end
up being quite costly for them,” said Silvio Peruzzo,
economist at RBS.

German Bund futures (FGBLZ0: ) extended the previous session’s
fall, leaving the contract at 127.29, down 43 ticks on the day
near its lowest since June, and almost unchanged on the week.

European clearing house LCH.Clearnet increased the deposit
it requires traders to post when looking to raise funds via repo
agreements using Irish government bonds for the third time this
month. [ID:nLDE6AO1NZ]

The yield on 10-year Irish government debt (IE10YT=TWEB: )
rose 12 basis points to 9.42 percent with analysts sceptical of
the growth forecasts underpinning Ireland’s deficit-busting
budget plan laid out on Wednesday.

“I think it’s probably fair to say we’re in Thanksgiving
mode today and liquidity is pretty restricted. But that hasn’t
stopped the selling of peripheral markets,” a trader said.

The Spanish spread (ES10YT=TWEB: ) against German Bunds
matched highs hit earlier this week at 260 bps.

Portuguese 10-year bond yields (PT10YT=TWEB: ), at more than 7
percent, are already above the level at which Ireland and Greece
stopped accessing bond markets and also well above the roughly 5
percent Lisbon would pay to borrow from the European Financial
Stability Facility.

A Reuters poll this week showed 34 out of 50 analysts
surveyed believe Portugal will be forced to follow Ireland and
ask for help. [ID:nLDE6AN0KK]


An unsourced report in German daily Die Welt said that the
European Commission had considered doubling the size of the
rescue fund. [ID:nBAT005801]

However, euro zone policymakers moved to quell market
concerns, saying that the size of rescue fund to support the
euro currency is sufficient and euro zone members will not let
the euro fail.[ID:nLDE6AO1TG]

The 10-year German bond yield (DE10YT=TWEB: ) was flat at 2.66
percent, while the two-year Schatz yield (DE2YT=TWEB: ) was down 1
basis point at 0.964 percent.

(Additional reporting by Kirsten Donovan; Editing by Ruth

EURO GOVT-Periphery squeezed, bailout cost worries hit Bunds