EURO GOVT-Bunds hold steady as euro zone allays Greece fears
* Greek aid tranche delayed again, Eurogroup meets Monday
* Germany sells 3.25 billion euros of bonds
* Demand for safe-haven assets remains strong
By Marius Zaharia
Nov 21 (Reuters) - German Bunds were steady on Wednesday as euro zone officials sought to soothe concerns about the failure of Greece's international lenders to reach a deal enabling them to release more aid to Athens.
Euro zone finance ministers, the International Monetary Fund and the European Central Bank will meet again next Monday to try to pencil a deal on how to get Greece's debt down to a sustainable level.
The main sticking point is whether to push back the target date for the debt to fall to 120 percent of output to 2022 from 2020. The latter cannot be achieved without euro zone members taking a loss on what Greece owes them but Germany and others oppose such a step.
The lack of consensus leaves the market no choice but to price in the possibility that Greece may receive no further help and face an uncontrolled default that could see it pitched out of the currency union.
But comments following the meeting also prevented panic.
German Chancellor Angela Merkel said she saw a chance for a deal on Monday and added lower interest rates and an expanded European Financial Stability Fund could fill Greece's funding gap
France said a deal was "a whisker away". Eurogroup Chairman Jean-Claude Juncker said the delay was caused by "technical reasons".
"The news (overnight) was a bit disappointing, but Merkel comments this morning seem pretty supportive," one trader said.
Bund futures were last flat at 142.38, having traded as high as 142.64 before Merkel's comments. On Tuesday, bets that a deal would be reached pushed them 62 ticks lower.
Cash 10-year Bund yields were also unchanged at 1.416 percent, in the middle of a roughly 50 basis points trading range that has held for the past six months.
UBS rate strategist Gianluca Ziglio said Bunds may lose further ground once the Greek aid tranche is released, as markets remove the "tail risk" from the price.
Greek debt markets, which are dominated by hedge funds that are willing to take higher risks than other investors, rallied. The 10-year Greek bond yield was 30 basis points down on the day at 16.877 percent, falling for the ninth consecutive session.
"The working assumption is that Greece is still going to get the money," Ziglio said.
Still, the lack of a final resolution on Greece as well as broader euro zone debt problems ensured that an auction of 10-year German government bonds drew solid demand despite low returns.
"Given that yields have fallen recently, this suggests that investors still (see) the safe-haven allure of the German government bonds given all the uncertainty in Greece," RIA Capital Markets bond strategist Nick Stamenkovic said.
Spanish 10-year yields fell 12 basis points on the day at 5.739 percent, with traders citing buying from domestic investors.
"I wouldn't be surprised - we've seen that happening - if there was some sort of moral suasion on Spanish banks to buy the paper ahead of auctions to make dealers short and buy the paper at the auction to cover themselves," Ziglio said.
"It basically creates additional demand that otherwise wouldn't be there.
Spain will sell three-, five- and nine-year bonds on Thursday.