EURO GOVT-Bunds rise day after weak data, meet resistance

Fri Feb 15, 2013 7:07am EST

Related Topics

* Bunds rise as data reinforces accommodative rate policy

* G20 meeting unlikely to soothe euro strength concerns

* Bunds meet resistance around 143 level

* Italian bonds seen vulnerable in run-up to elections

By Ana Nicolaci da Costa

LONDON, Feb 15 (Reuters) - German Bunds rose on Friday, a day after euro zone data reinforced the case for the ECB to hold down borrowing costs and before a G20 meeting that is thought unlikely to soothe concerns about a strong euro.

But the gains were limited as the Bund met technical resistance at around 143 - a level it has repeatedly tested in February and has failed to break sustainably.

Officials from the Group of 20 major economies struggled to find a common form of words on currency manipulation before Friday's summit. "Currency wars" were expected to feature high on the agenda.

"The market thinks the G20 cannot do very much about this, it basically means that the euro in current conditions will have a tendency to appreciate ...," Elwin de Groot, senior market economist, at Rabobank said.

"Taking these things together - economic weakness (and) persistent prospect of potential further upward pressure on the euro - that could provoke action by European monetary policymakers. For the Bund, it's positive because it raises the potential for falls in money market rates."

German Bund futures rose 17 ticks to 142.76, having rallied half a point on Thursday after data showed the euro zone fell deeper into recession than expected in the fourth quarter of 2012. Christian Lenk, strategist at DZ Bank, said 143 "is a important resistance zone at the moment."

ACCOMMODATIVE RATES POLICY

Euro zone money market rates dropped on Thursday after the disappointing euro zone growth data.

Their rise was arrested by ECB President Mario Draghi who said last week he would monitor money markets to ensure policy remains "accommodative".

He was referring to the rise in money market rates after the higher than expected repayment of ECB crisis loans was seen by many as a de facto tightening of ultra-loose monetary policy and as one reason why the euro strengthened.

Banks will pay back 3.79 billion euros ($5 billion) next week of 3-year loans they took from the ECB just over a year ago, bringing the total payback of the first 489 billion in loans to 149 billion.

Norbert Aul, rates strategist, at RBC Capital Markets also saw the Bund's rise as a continuation of the previous day's trend driven by weak euro zone gross domestic numbers and an accommodative stance by the ECB.

ECB Vice-President Vitor Constancio said on Thursday that the ECB is technically ready but has not decided whether to lower the interest rate on banks' deposits at the central bank into negative territory.

"The ECB verbally intervened already in terms of highlighting their accommodative stance at the past press conference. ECB's VP Constancio actually went one step further as he opened up the discussion about negative rates again," Aul said.

Aul also said the market wasn't fully pricing in the risks associated with this month's Italian election, including that of a hung parliament.

"This should weigh on peripherals in the run-up to the elections and, depending on the election outcome, potentially also after that, which is another factor to support Bunds."

Ten-year Italian government bond yields were down 2 basis points at 4.37 percent. The Spanish equivalent was flat at 5.20 percent.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.