EURO GOVT-Periphery uneasy ahead of Eurogroup meeting

* Periphery uneasy ahead of Eurogroup meeting

* Bernanke’s QE comments support Bunds

* Treasury/Bund spread almost halves

By Kirsten Donovan

LONDON, Dec 6 (BestGrowthStock) – Trading of sovereign bonds from
countries such as Portugal and Spain was subdued on Monday
pending the outcome of a meeting of euro zone finance ministers
with the region’s debt crisis still occupying centre stage.
That offered some support to German Bund prices, which rose
and were also supported by firmer U.S. Treasuries after Federal
Reserve Chairman Ben Bernanke did not rule out bond purchases
beyond those currently planned.

Peripheral yields nudged wider after being kept in check
last week by European Central Bank bond buying, which traders
said was being seen to a greater extent, although not the major
acceleration some had been expecting.

“The periphery has not started off as strong as it has been
over the last couple of sessions,” said RBC Capital Markets’
rate strategist Norbert Aul.

“There is still a lot of uncertainty around the outcome of
the Eurogroup (finance ministers’) meeting and what further help
for the euro zone periphery will look like.”
Last week’s tightening bought the Irish 10-year spread over
Bunds down to 570 basis points, from recent highs around 700
bps, prompting European clearing house LCH.Clearnet to reduce
its margin requirement on Irish government bonds used in repo
transactions [ID:nLDE6B509H].

But with spreads and outright bond yields still elevated
compared with historical levels, analysts cautioned that the
crisis was not over yet.

“We do not regard the recent tightening of euro zone
government bond spreads as a structural movement,” rate
strategists at Barclays Capital said.

“Market sentiment is still fragile and very sensitive to the
headline news regarding the European Stability Mechanism.”

December Bund futures (FGBLZ0: ) were 35 ticks higher at
126.54. Two-year bond yields (DE2YT=TWEB: ) were 2.3 bps lower at
0.841 percent, with 10-year yields (DE10YT=TWEB: ) down 3 bps at
2.832 percent.

Some economists question the euro’s (EUR=: ) future after an
85 billion euro ($114 billion) aid package for Ireland and plans
for a permanent bailout facility failed to calm financial
markets.

“Markets are yearning for a political commitment on which
way the euro area is heading,” Commerzbank strategists said in a
note.

An IMF report to be presented to the Eurogroup ministers
said the euro zone should have a bigger rescue fund for member
states in trouble, and the ECB should boost its bond buying to
prevent the sovereign debt crisis from derailing economic
recovery. [ID:nLDE6B40CZ]

The spread between 10-year Bunds and U.S. Treasuries almost
halved to 10 bps.

Speaking on the 60 Minutes television programme, Fed
Chairman Ben Bernanke said the central bank could end up buying
more than the $600 billion in U.S. government bonds it has
committed to purchase if the economy failed to respond or
unemployment stayed too high.

Bernanke’s comments came after U.S. jobs data on Friday
showed an unexpected rise in the jobless rate.

(Reporting by Kirsten Donovan; Editing by Ruth Pitchford)

EURO GOVT-Periphery uneasy ahead of Eurogroup meeting