EURO GOVT-Spanish, Portuguese bond yields rise, Bunds slide

* Peripheral, core euro zone government bond yields rise

* No new steps to counter debt crisis, tension remains high

* Ten-year Bund yields not seen topping 3 pct

By William James

LONDON, Dec 7 (BestGrowthStock) – Euro zone core and higher-yielding
debt came under pressure on Tuesday after euro zone ministers
took no new measures to tackle the debt crisis, while weak U.S.
Treasuries weighed on demand for German Bunds.

Euro zone finance ministers on Monday chose to stand by
their action so far against the currency bloc’s mounting banking
and debt problems, confounding those in the market calling for
an enlarged financial safety net. [ID:nLDE6B40EJ]

Although talks will continue later in the day when finance
ministers from the wider European Union meet, the lack of a
unified stance on a permanent crisis management mechanism to
stabilise the region kept markets on edge.

“The risks are still there and I don’t think anyone feels
reassured. This is about reassurance of leadership — it’s less
about concrete measures,” said Marc Ostwald, strategist at
Monument Securities in London.

Spanish and Portuguese 10-year yields both rose, pushing the
spreads over the German benchmark wider on the day. The
Spanish/German spread was 9 basis points wider on the day at 243
bps, and the Portuguese equivalent was out by 8 bps to 330 bps.

Traders said volumes were thin, adding that many investors
were waiting to see if the European Central Bank continued
buying bonds before entering the market.

The Bund future (FGBLc1: ) was 40 ticks lower at 126.17,
keeping pace with U.S. Treasuries which came under pressure
ahead of debt supply and after equities were boosted by a U.S.
deal to extend tax cuts, lifting the economic outlook.

Analysts said the likelihood of European officials agreeing
to the IMF’s call to increase the size of the 750-billion-euro
($995 billion) European Financial Stability Facility (EFSF) or
make progress towards issuing a common euro zone bond was
receding.

“My gut feeling is that spreads are going to carry on
widening for a while yet,” said Chris Scicluna, deputy head of
economic research at Daiwa Capital Markets.

“Anyone in the market who is expecting someone, somewhere to
fund more support for the periphery, whether it be the EFSF or
the ECB — they’re going to be disappointed.”

An increase in bond purchases by the European Central Bank
has contained some of the recent volatility in higher-yielding
euro zone debt yields.

But, with the ECB divided over the role of the bond-buying
programme, and Germany raising strong opposition to increasing
the bailout fund or issuing a common euro zone bond, any swift
resolution looks unlikely. [ID:nLDE6T0MG]

The medium-term outlook for German debt was seen as
positive, with its safe-haven status seen keeping 10-year yields
below the psychological 3 percent barrier.

“I would expect ongoing disappointment from the political
arena and ongoing deterioration in secondary market liquidity in
everything else but Bunds. This should be an underlying positive
factor for the Bund sector,” said David Schnautz, rate
strategist at Commerzbank in London.

The 10-year German bond (DE10YT=TWEB: ) yielded 2.889 percent,
up 3.8 basis points, while the two-year Schatz yield
(DE2YT=TWEB: ) rose 3.7 basis points to 0.851 percent.

IRISH AUSTERITY

The Irish/German bond yield spread tightened by 4 bps on the
day to 562 bps on expectations Ireland’s fragile government
would manage to get its austerity budget passed by parliament on
Tuesday, paving the way for it to access emergency loans from
the EU and IMF. [ID:nLDE6B51VW]

“The budget is set to pass, which would not be that much a
big deal for markets, but if we get any major hiccups, that
could certainly have negative effects not only on Irish, but
also on the other usual suspects,” Schnautz said, referring to
other countries with heavy national or corporate debt burdens
such as Portugal, Spain and Greece.
(Editing by Susan Fenton)

EURO GOVT-Spanish, Portuguese bond yields rise, Bunds slide