* Uncertainty before Greek election favors German debt
* Underscores confidence in credit quality of German debt
* German sale attracts 1.4 bid-cover, above year's average
By Ana Nicolaci da Costa and Sarah Marsh
LONDON/BERLIN, June 13 Uncertainty before Greek
elections prompted investors to pick up 10-year German bonds at
a sale on Wednesday, easing niggling concerns about the
country's credit quality as the euro zone debt crisis drags on.
A sell-off in German debt over the past two sessions also
boosted demand for 4.04 billion euros of 10-year paper by
cheapening bond prices and pushing yields higher.
"The auction saw a decent overbidding which is encouraging,"
Michael Leister, strategist at DZ Bank, said. "It's reassuring
that the credibility and the view on Germany's credit quality
German bonds came under pressure over the past two days as
markets absorbed long-dated supply from highly-rated issuers
Austria, the Netherlands and the European Financial Stability
Fund. The losses prompted some questions about Germany's
safe-haven appeal given expectations any efforts to resolve the
crisis would take a toll on its finances.
Others say Bunds have sold off as investors have taken
profit on recent huge gains.
But the results showed Bunds were still the favourite in the
euro zone as investors seek to preserve their capital, analysts
The sale attracted 1.4 times the amount on offer,
demonstrating the euro zone's largest economy is still able to
borrow in times of market stress and pay much less than other
euro zone countries.
The bid-to-cover ratio was below 1.5 at the previous sale in
May but above the average for similar auctions this year at
The average yield at the sale was 1.52 percent, above those
offered at the previous auction but below this year's 1.764
The auction comes only days before the Greeks go to the
polls in a vote which will be decisive for Greece's future in
the euro and as investors fretted about Spain's long-term
ability to access markets.
"No one really wants to take big risk ahead of this event...
which is positive for Bunds," Leister added.
German Bund futures last traded at 141.47, down a
point on the day, compared with 141.50 before the auction.
At a separate bond sale, Italy's one-year borrowing costs
shot up to a six-month high of 3.972 percent on concerns about
the country's ability to continue to sustain its debt mountain
as contagion spreads and growth struggles..
It faces a harder task on Thursday when it offers three-year
bonds and two longer-dated issues no longer sold on a regular
basis, for a total of up to 4.50 billion euros.