EURO GOVT-Bunds rise, expectations low for euro zone meeting

LONDON Mon Oct 8, 2012 2:16am EDT

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LONDON Oct 8 (Reuters) - Bund futures rose on Monday after a sharp sell-off in the previous session as u ncertainty over the timing of a Spanish bailout request dominated sentiment and little progress was expected from a meeting of euro zone finance ministers later on.

Euro zone finance ministers will formally launch the euro zone's permanent, 500-billion-euro bailout fund on Monday, and will also discuss an expected request by the Spanish government for a precautionary credit line from the ESM.

Expectations that Spain will ask for aid, which would likely trigger the European Central Bank's bond-buying program, has taken yields on Spanish bonds sharply lower but analysts say for them to remain low, action is necessary.

"The guessing game will continue but the market will increasingly realise that at the end of the day there will be more debt mutualisation coming through so we think Bunds remain vulnerable despite the sell-off we have seen on Friday after the payrolls," Rainer Guntermann, strategist at Commerzbank said.

German Bund futures were 42 ticks higher at the open at 141.27, having fallen 80 ticks on Friday as a surprise drop in U.S. unemployment underpinned appetite for riskier assets.

"If anything our strategy recommendation would be to sell into strength," Guntermann said, adding there was support around 139.00.

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