EURO GOVT-Greek debt deal hurts Bunds but doubts curb losses

Tue Nov 27, 2012 7:44am EST

Related Topics

* Greek deal brings relief to riskier assets, Bunds fall
    * Bunds sell-off seen short-lived as deal largely priced in
    * Spanish aid request doubts temper peripheral debt demand


    By Emelia Sithole-Matarise
    LONDON, Nov 27 (Reuters) - German government bond prices
fell on Tuesday after Greece's international lenders sealed an
aid deal to avert near-term bankruptcy but doubts about some of
the measures tempered the sell-off in low-risk debt.
    The accord will cut Greek debt by 40 billion euros to reduce
it to 124 percent of gross domestic product by 2020. It eases
the way for Athens to receive its next aid tranche in
mid-December, removing fears of an imminent default.
 
    The relief lifted demand for riskier assets such as equities
and kept yields on 10-year Greek bonds near their
lowest since the country's debt restructuring in March.
    The German Bund future fell nearly 60 ticks to a
session low of 141.84 in early trade but the losses were quickly
halved as doubts about the deal emerged. The contract last stood
stood 24 ticks down on the day at 142.19.
    "Too much (of the deal) has been anticipated, It's not a
real game-changer. We expect some upside pressure on Bund yields
but not a sustained sell-off," said Michael Leister, a senior
rate strategist at Commerzbank.  
    German 10-year yields were last up 2 basis
points on the day at 1.44 percent. They have risen over the past
two weeks from a 2-1/2 month low of 1.315 percent as investors
anticipated that Greece's lenders would eventually compromise on
a deal to keep the debt-stricken country afloat.
    Bund yields are likely to remain in the tight 35 bps range
that has prevailed over the past month as questions remain on
how some of the Greek measures will be implemented, traders and
strategists said.

    POTENTIAL PITFALLS
    Investors were keen for details on a Greek bond buyback
which has to be carried out before the International Monetary
Fund can release its share of the aid tranche in December. There
was also concern about Athens' ability to meet debt reduction
targets to ensure release of cash installments.
    "It looks like a skeleton of a compromise on measures that
needed to be passed in order to facilitate the disbursement of
the next aid tranche for Greece, keep the IMF on board as long
as possible, and basically kick the can down the road again,"
said Gianluca Ziglio, a strategist at UBS. 
    "A lot of details are missing and how the plan will
eventually be reassessed, particularly in terms of debt
sustainability. The only thing we know about the buyback is
what's going to be the maximum price but there's nothing else
about modalities."   
    Greek bond prices were marked higher across the strip 
, pushing yields on the benchmark 10-year bond
 down 19 bps to 16.3 percent while Portuguese
equivalents were down 24 bps at 7.92 percent.
    Among other peripheral bonds, Spanish 10-year yields were
5.5 bps lower at 5.58 percent while Italian peers were steady on
the day. Some traders said uncertainty over when Spain would
request external aid to trigger European Central Bank support
tempered demand for the debt.  
    "People are looking at Spain, which looks like it's not
going to make an aid request until next year, so we are likely
to remain range-bound."
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