EURO GOVT-Bunds rise to day's high after healthy German auction

Wed Jan 9, 2013 7:44am EST

Related Topics

* Healthy demand at German auction supports Bunds
    * New German 5-year attracts 1.8 bid cover
    * Charts still painting downbeat picture for Bunds


    By Ana Nicolaci da Costa
    LONDON, Jan 9 (Reuters) - German Bund futures rose to
session highs on Wednesday after a sale of new five-year debt
which analysts said was well received thanks to a recent uptick
in yields.
    Germany sold 4.09 billion euros of new five-year government
bonds, drawing bids for 1.8 times the amount on offer, compared
with 1.9 times at a previous auction of similar debt in
November. 
    Although the bid-cover was lower than the 1.96 average at
similar sales in 2012, analysts said the pricing was strong and
the tail - the difference between the lowest and the average bid
 - was low, indicating good demand. 
 
    "What it tells us is that we are at the beginning of the
year and having backed yields up somewhat in the so-called core
or safe-haven market, there is money to be put to work," Marc
Ostwald, strategist at Monument Securities said.
    German Bund futures rose to a session high of
143.72 after the auction and were last up 19 ticks on the day at
143.62. They opened lower as an upbeat start to the U.S.
earnings season underpinned European stocks.
    In the secondary market, five-year yields were
2.2 basis points lower at 0.46 percent and ten-year yields
 were down 1 bps at 1.48 percent.
    "We seem to be holding the 1.50 level, which is obviously a
key support level - (around) the upper end of recent trading
range," Nick Stamenkovic, strategist at RIA Capital Markets
said.
    Despite the rise, technical charts were painting a downbeat
picture for the Bund, and Piet Lammens, strategist at KBC, said
only a sustainable move above 143.75 and 143.92 would change
that outlook. 
    "If we would move sustainably beyond these two levels the
picture might become more bullish for the Bund."SPAIN IN FOCUS
    Demand at bond sales from the Netherlands and Austria in the
previous session show investors remain keen to hold safer euro
zone assets even as the pick-up offered by Italian and Spanish
bonds, combined with the promise of central bank intervention,
has lured them back into those markets.
    Ten-year Spanish bond yields were 4.5 basis
points higher at 5.13 percent, with bond prices coming under
pressure one day before the country's first debt auction of
2013.
    Madrid unveiled a sizeable 121 billion euro gross funding
target for the year on Tuesday - a 7.6 percent increase on the
amount it raised in 2012 that highlights the country's economic
plight. 
    Spain's ability to raise funds in the market will be key in
determining whether it will be forced to seek financial aid this
year - a precondition for purchases of its bonds by the European
Central Bank.
    The mere promise that the ECB will buy bonds of countries
that ask for help has been enough to trigger a sharp drop in
Spanish and Italian yields in recent months but some analysts
say the pressure will eventually mount.
    "Implicit in our view is that Spain will at some point make
an official request for aid to cement the progress that has been
made and also the drop in yields," Elwin de Groot, senior market
economist at Rabobank said. 
    "You can argue that because the yields have fallen already
to such an extent, the pressure on the Spanish government is
much lower to do so but at the same time they know this is a
fragile equilibrium."
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