EURO GOVT-Bunds at 2-mth high on renewed French rating talk

LONDON Wed Jan 11, 2012 10:33am EST

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LONDON Jan 11 (Reuters) - French government bonds gave up some ground against German benchmarks on Wednesday, with Bund futures extending gains to their highest level in two months spurred by speculation of an imminent downgrade of France's triple-A credit ratings.

The moves came even as a senior French government source denied market talk the country had been informed of any imminent downgrade.

The French 10-year government bond yield spread over German Bunds was last flat on the day around 137 basis points, having tightened to 131 bps earlier.

Bund futures rose as much as 62 ticks on the day to 139.34, their highest since Nov. 10, building on gains made after a solid German sale of new 5-year bonds.

"We've had a very successful Bobl auction, then we had a bit of a slide down when (German Chancellor Angela) Merkel said they were prepared to prefund the rescue fund. Now we have the ... rumours about the French downgrades," a trader said.

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