EURO GOVT-Periphery uneasy as Eurogroup seen split

* Spanish, Italian debt yields rise as Eurogroup meets

* Market doubts Eurogroup can reach consensus on debt crisis

* Bunds advance; Bernanke bond-buying comments supportive

* Treasury/Bund spread halves

(Updates to European settlement, fresh quotes, detail)

By Emelia Sithole-Matarise

LONDON, Dec 6 (BestGrowthStock) – Risk premia on Italian and Spanish
sovereign bonds rose on Monday on investor doubts a meeting of
euro zone finance ministers would agree a common approach to
tackle the region’s debt crisis.

Yields on Italian, Spanish and Greek bonds and the cost of
protecting them against default rose after Germany rejected a
call by the International Monetary Fund to increase the size of
a 750 billion euro safety net for debt-stricken members.

Germany also dismissed a call by two veteran finance
ministers for joint euro bonds to be guaranteed by the whole
single currency bloc. [ID:nLDE6B40EJ]

Peripheral debt yield spreads over German benchmarks widened
after being kept in check last week by European Central Bank
bond buying, which traders said had increased.

“The latest comments suggest they (Eurogroup finance
ministers) are far away from a compromise so we have to wait for
the EU summit next week to get a flavour,” Nick Stamenkovic, a
rate strategist at RIA Capital Markets, said.

“Clearly, if a significant policy is not put in place then
given the funding issues that Spain, Portugal in particular, is
going to face next year, it will be difficult to see spreads
narrow as we saw last week,” he said.

Portuguese 10-year bond yields (PT10YT=TWEB: ) rose almost 13
basis points earlier to 6.22 percent, before retreating to
settle 2 bps up at 6.10 percent, with traders citing ECB buying
of the country’s bonds later in the day.

Equivalent Spanish and Italian yields were up 7.6 and 6 bps
respectively, while the Greek 10-year bond yielded 7.7 bps more
on the day at 11.856 percent.

Traders said more modest central bank purchases kept a lid
on Irish yields, with the spread over Bunds holding steady at
566 bps ahead of the government’s presentation to parliament on
Tuesday of the government’s 2011 austerity budget.
“It’s (ECB buying) not as aggressive today as Thursday and
Friday, but they’re still in the market, which is a good thing,”
Eamon Reilly, a trader at Davy Stockbrokers, said.

ECB TOTAL PURCHASES UP SLIGHTLY

Last week’s spread tightening over Bunds brought the Irish
10-year spread over Bunds down to 568 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:nLDE6B10EI].

Latest data showed the ECB bought 1.965 billion euro of
government bonds in the week to Dec. 3, slightly up from 1.348
billion the previous week. The data does not cover the end of
the week, when traders think the bank intensified its efforts.

Analysts cautioned 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.”

The widening peripheral spreads offered some support to
German Bunds, which gained further traction after Federal
Reserve Chairman Ben Bernanke did not rule out bond purchases
beyond those currently planned.

The premium on 10-year T-notes over Bunds more than halved
to around 9 bps after Bernanke’s comments broadcast on Sunday.

December Bund futures (FGBLZ0: ) were 38 ticks higher at
126.57 while in the cash market, two-year German bond yields
(DE2YT=TWEB: ) were 5 bps lower at 0.813 percent, with 10-year
yields (DE10YT=TWEB: ) down almost 3 bps at 2.836 percent.

(Additional reporting by Anna Yukhananov)

EURO GOVT-Periphery uneasy as Eurogroup seen split