EURO GOVT-Bunds slip as investors mull Italy deadlock

LONDON Thu Feb 28, 2013 2:08am EST

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LONDON Feb 28 (Reuters) - German Bund futures edged lower on Thursday as investors took stock of Italy's political stalemate, with concerns over possible fresh elections offset by the European Central Bank's bond-buying backstop.

The crisis following indecisive election results in Italy deepened on Wednesday when two party leaders ruled out the most likely options to form a government, raising the chances of a fresh vote.

However, Bund futures fell 13 ticks versus Wednesday's settlement to 144.96, in line with after-hours trading, as an overnight recovery in equity markets weighed on demand for less risky and lower-yielding German debt.

"Either investors expect Italy to solve its problems or they expect the ECB to step in (in) case of need," Nordea's chief European analyst Holger Sandte said in a note.

The ECB's promise to buy bonds, made last year to halt an investor exodus from the euro zone's lower-rated debt, has helped to limit the selloff in Italian bonds. Italian BTP futures were 40 ticks higher on the day at 109.29.

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