French/German bond spread widens, Bund future falls

LONDON, Sept 16 (Reuters) - The premium investors demand to hold 10-year French government bonds rather than euro zone benchmark German Bunds rose on Thursday to its highest since early July following a disappointing BTAN auction.

The 10-year French/German government bond yield spread FR10YT=TWEBDE10YT=TWEB widened by two basis points on the day to 38 bps. Earlier, France sold 8.47 billion euros of short-dated BTANs. [ID:nTAR01161]

The 10-year Spanish/German government bond yield spread ES10YT=TWEBDE10YT=TWEB narrowed by three bps to 74 bps after its 4 billion euros 10- and 30-year maturity Bono sale was well-received by the market.

"The French bond results were poor in relation to the successful Spanish bond sales today, hence that is why French spreads continued to rise after the bond auction," a senior bonds trader in Berlin said.

The December Bund future FGBLc1 fell to a session low of 129.34 after breaking below support at 129.53, triggering stop loss selling. By 1030 GMT it was down 62 ticks on the day at 129.49.

"Bunds are weaker because with peripheral auctions favoured, some people think the flight to quality trades have been overdone lately," he added. (Reporting by George Matlock)