EURO GOVT-Growth, Spain concerns lift Bunds
* Bund futures rise after below-forecast Ifo * Spain says in no rush to seek aid * Moody's expected to finish Spain rating review this week By Marius Zaharia and Emelia Sithole-Matarise LONDON, Sept 24 (Reuters) - German government bond prices rose on Monday after a disappointing German business sentiment survey and were likely to edge higher in the near term as Spain's reluctance to seek a bailout unnerves investors. The weak German Ifo survey added to concerns the euro zone's strongest economy was not immune to the debt crisis, weakening the euro and increasing demand for safe havens such as Bunds. Sources with knowledge of the matter have told Reuters the Spanish government has been working on a series of reforms to be included in a budget bill later this week that would form the basis of a future aid deal. But Economy Minister Luis de Guindos said on Saturday that Spain would not rush to secure external help. Seeking aid through the euro zone's rescue funds would allow the European Central Bank to buy Spanish bonds in the secondary market, lowering Madrid's borrowing costs. However, these costs have fallen sharply since the ECB bond-buying plan was unveiled in August, reducing the immediate pressure on Spain to ask for help. European officials also said they did not expect Spain to seek an assistance programme before a regional election in the Galicia region on Oct. 21. This could test the market's patience if the uncertainty drags on for long. "If he (Prime Minister Mariano Rajoy) stays too long with his wait-and-see game then yields will move up again and then rapidly he'll have to come in and ask for an aid package," said Piet Lammens, a strategist at KBC. "I hope that won't happen as that would hurt confidence." Bund futures rose 40 ticks on the day to settle at 140.40. One trader said the lack of guidance from Spain on the timing of a future bailout may see futures testing the top of their recent 139.5-140.5 range. But it looked unlikely they would stray too far outside that range without better insight into Spain's plans. "Ultimately if it looks likely that they will reach an agreement over a bailout it makes sense for the markets to hang in there," said Chris Scicluna, head of economic research at Daiwa Capital Markets, adding that the details of the 2013 budget draft to be published on Thursday will be key. "Any policy announcement this week that would be consistent with the kind of conditionality that would be demanded anyway is likely to be a further step towards the signature of the deal." DOWNGRADE THREAT Spanish government bond yields edged lower but volumes were light with investors choosing for now to express their concerns about the uncertainty in Spain in more liquid safe-haven German debt. A wrong bet on Spanish debt would be more costly as it would take more time to close a position in the thin Spanish market, which is dominated by domestic investors. "It's a volumes problem in Spain, and the outlook is so binary that you'd rather stay out or stay neutral," a trader said. The threat of a possible downgrade of Spain's credit rating into junk territory by Moody's Investors Service later this week also hangs over Spain. As the other two rating agencies still rate Spain in investment grade territory, and a lot of the debt is domestically owned, the risk of a strong sell-off after a downgrade is limited, analysts said. Many market participants still favoured shorter-dated peripheral bonds over longer maturities, given the ECB's signal that it would buy debt with maturity of up to three years. "I'd be a bit happier in short maturity debt than I was before, given the ECB backstop, but it buys time it doesn't provide a solution," said Elisabeth Afseth, a strategist at Investec. "You do have the potential that further bailouts are required and you have the private sector involvement coming in at some stage. I'd still be pretty cautious on the longer maturities. Even in the shorter end you have to be ready that things could get worse before they get better."
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