EURO GOVT-Bunds rise on caution over Greece, Spain

Fri Nov 23, 2012 7:18am EST

Related Topics

* Bunds rise, periphery pressured before the weekend

* But Greek hopes see Bunds set for weekly decline

* Spanish yields edge up before Catalonia elections

By Kirsten Donovan

LONDON, Nov 23 (Reuters) - German government bonds edged up and yields on peripheral bonds rose on Friday as investors took profits on a rally in Greek and other riskier debt that has banked on a positive conclusion to Athens' latest aid talks.

Greece and its creditors looked to be inching closer to a deal on Friday, leaving German Bunds on track for their first week of losses in more than a month.

But there is still ground to cover to ensure more aid is released to Athens on Monday and investors did not want to leave themselves exposed to that or a regional election in Spain over the weekend.

The transfer of 44 billion euros of funds has been delayed by disagreements between the European Union and the International Monetary Fund over how to make government debt sustainable.

A senior Greek official said on Friday lenders had agreed on new measures to cut the debt further but it still had to bridge a 10 billion euro funding gap to gain the IMF's approval .

Market reaction was muted. Analysts said that with the likelihood of a deal already more or less priced in, more concrete news would be needed.

"It's not the first time we have this type of news. The market knows there is a disagreement," said ING rate strategist Alessandro Giansanti.

"Until there is an official statement, detailing what they want to do, ... we're not going to see so much of a reaction."

Greek government bond yields were little changed at 16.49, close to their lowest levels since the country's debt was restructured in March.

Bund futures were 17 ticks higher at 142.33, having fallen around a point this week, and 10-year yields were 1.5 bps lower at 1.42 percent.

"The main flows this week have been the reasonable buying of the periphery from Spain to Greece. It doesn't take much to move prices significantly and there's been enough of a one-way flow in these markets to make a difference," a trader said.

As profits were taken on that peripheral rally, Bunds rose and held gains despite business sentiment survey data from Germany's Ifo institute beating analysts' expectations .

"Bunds have had quite a bit of sell-off recently so we're seeing a bit of a consolidation but are staying in pretty tight ranges," a second trader said.

Elections in the Spanish region of Catalonia have been seen as a hurdle before Spain would seek a bailout, but markets do not now expect such a request this year given that the national government has already completed its 2012 funding.

Spanish 10-year yields have fallen around 20 bps this week as peripheral markets rallied, further taking the pressure off Spain to seek help.

They were last 2.5 bps higher on the day at 5.70 percent after Standard & Poor's took ratings action on a host of Spanish banks

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