EURO GOVT-Bunds rise but vulnerable to correction

Thu Apr 25, 2013 4:04am EDT

Related Topics

* Bunds considered expensive, vulnerable to correction
    * German yields could rise to 1.30 pct - analyst
    * Central bank cash to support Italy regardless of politics


    By Ana Nicolaci da Costa
    LONDON, April 25 (Reuters) - German Bund futures were up
slightly on Thursday but analysts said the euro zone's top-rated
debt was vulnerable to profit taking in what looked set to be a
quiet session. 
    In the absence of any major data in the euro zone, investors
could look to Britain's first-quarter gross domestic product
data to see if it reinforces the gloomy economic picture painted
by recent releases out of the United States and Germany.
 
    Rising expectations for an interest rate cut by the European
Central Bank as early as next week has provided German Bund
futures with support recently, making them vulnerable to a
correction, analysts said. 
    "Most of this rate excitement and the expectation for a 25
basis points' lower refinancing rate should be in the price by
now," said Rainer Guntermann, strategist at Commerzbank.
    "Here the market needs further bullish impetus. It may risk
a corrective move from here but very short term, maybe just for
today."
    German Bund futures were up 10 ticks at 146.29,
having reached a new June contract high this week and drawing
closer to record highs of 146.89 hit in June.
    Patrick Jacq, rate strategist at BNP Paribas, said the
contract was too expensive at current levels and there was room
for 10-year German yields to push higher to the
1.30 percent area from 1.23 percent currently.
    "At the moment I am relatively short of the Bund," Jacq
said. 
    
    ITALY
    Italian yields were higher as investors balanced the
benefits from the designation of a new premier with concerns
that the differences within a future coalition would make it
difficult to implement growth-boosting, deficit-cutting reforms.
 
     A senior centre-right official said on Wednesday the party
would not support a government that does not agree to eliminate
a housing tax, underscoring the difficulties in even agreeing a
new government. 
    Italian 10-year government bond yields were
4.6 basis points higher at 4.05 percent and the Spanish
equivalent was 2.3 bps higher at 4.31 percent.
    Regardless of the political developments in Italy, analysts
expect there to be ongoing demand for the still relatively
high-yielding debt thanks to abundant central bank liquidity in
the financial system.
    "It's a mixed bag but so far the market is relatively
constructive," Jacq said. "In the very near term I don't see a
risk of a major sell-off after the strong rally."
    Ultra-loose monetary policy from major central banks around
the world has been lifting risky and safe assets alike as
investors seek to put the abundance of cash to work.
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