* Strong German auction lifts Bunds
* Germany sells 1.7 bln euros of 2044 bonds
* France also finds high demand for long-term debt
By Ana Nicolaci da Costa and Kirsten Donovan
LONDON, Oct 31 German Bunds rebounded after a
strong auction of long-term German debt on Wednesday but
uncertainty over a possible Spanish aid request looked set to
keep trade rangebound.
Investors snapped up long-term debt from Germany and France
as a recent European Central Bank-inspired lull in the
three-year-old crisis persuaded some investors to look at
"It was very successful, especially compared to previous
auctions," Alessandro Giansanti, strategist at ING said.
"It means the market is looking with more interest at the
long end of the curve after the last few months when it has been
a part of the curve not really liked because there were worries
expansionary monetary policy could drive inflation in the medium
German Bund futures ended 14 ticks higher on the
day at a settlement close of 141.68. The contract fell earlier
as traders tried to cheapen the paper before the auction.
Germany's final sale this year of its 2044 bond raised 1.704
billion euros and attracted bids worth 2.7 times the amount sold
to investors - well above the average of similar sales in 2012.
France found similarly high demand for its long-term debt,
selling six-, 10- and 23-year bonds worth 7.49 billion euros,
the maximum the Treasury had targeted.
In the secondary market, German 30-year yields
fell 3.2 basis points to 2.31 percent while 10-year yields were
down 1 bp at 1.47 percent.
The rise in safe-haven German debt came as global stocks
traded lower as Wall Street began trading on Wednesday after
monster storm Sandy forced a two-day closure due to weather for
the first time since 1888.
The spread between 10-year French and German bond yields
, however, widened 12 basis points to 225 bps.
Sovereign debt markets have traded in tight ranges on the
possibility that the European Central Bank could buy bonds if
Spain asks for aid.
The market will struggle to break free from these ranges for
as long as uncertainty remains over the timing of that request,
analysts said. That is because investors are reluctant to be
caught off guard with selling positions if the central bank
Spanish 10-year bonds yielded 5.63 percent,
well within recent price action. It has traded roughly between 5
and 6 percent for the past two months.
"I am coming around more to the idea that (Spain) will hold
(off) until after Christmas," Lyn Graham-Taylor, strategist at
Rabobank, said. In the mean time, he said "we could see a slow
gradual uptick in Spanish yields and we still favour more
flattening in Bunds between 5's and 30s in particular," he said
referring to a trend whereby longer-dated bond yields fall
faster than short-dated ones.
But investors would be reluctant to take the flattening
trade much further on the expectation that longer-dated Bunds
would sell off if the ECB's bond-buying is triggered, he said.
"As much as in the case of Spain, you have got people not
wanting to fight the OMT (Outright Monetary Transactions), you
have got a lot of people not wanting to fight the steepening you
will likely see in Bunds when OMT gets activated," he said.