German Bund yields near 2014 lows on Iraq worries

LONDON, June 25 Wed Jun 25, 2014 3:40am EDT

LONDON, June 25 (Reuters) - German government bond yields fell towards their lowest levels this year on Wednesday as worries over violence in Iraq pushed investors towards assets perceived as safe havens.

Sunni insurgents battled government forces for control of Iraq's biggest refinery, keeping oil prices close to $114 per barrel, with some analysts fearing a further rise could pose a risk to the global growth outlook.

"It's a volatile situation in Iraq and Treasuries and Bunds benefit from flight to quality," said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh.

German 10-year Bund yields fell 1.5 basis point to 1.31 percent just above this year's low of 1.285 percent. Bund futures were 18 ticks higher at 146.29, having risen by almost two points in the past two weeks.

Yields on the euro zone's lowest-rated bonds were a tad higher as investors made room on their books before debt sales in Italy.

The Treasury plans to sell up to 3.5 billion euros of inflation-linked debt and zero-coupon bonds later in the day and up to 8 billion euros of bonds on Friday.

Italy has completed more than 60 percent of its 2014 funding programme, while Spain has completed more than 70 percent of its plan as the bloc's most indebted governments try to exploit record low borrowing costs to build financing buffers.

Debt managers in Spain, Italy and Portugal said on Tuesday they planned to push ahead with measures to raise the average life of their debt and manage redemptions in a bid to quell concerns about a large refinancing hump.

Italian and Spanish 10-year yields were last 1 bps higher at 2.78 percent and 2.67 percent, respectively. Both have fallen sharply this week as weak euro zone activity data rekindled speculation the European Central Bank could launch a programme of large-scale asset purchases - or quantitative easing (QE) - in the future.

The ECB cut its key interest rates last month and promised more liquidity to banks via long-term loans called targeted long-term refinancing operations or TLTROs. It has signalled it would take a wait-and-see approach in the near term.

"The grand scepticism is that TLTROs are not going to work so you'd think they'll do QE," one trader said. "They're not going to do it this year, but the carry trade still rules." (Editing by Nigel Stephenson)

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