(Corrects settlement level for bund futures in paragraph 8)
* Bunds rise after Obama election win
* European focus turns to Greek austerity vote
* Germany sells 3.3 bln euros of 5-year bonds
By Ana Nicolaci da Costa and Kirsten Donovan
LONDON, Nov 7 Bunds rallied on Wednesday as the
fiscal challenges facing U.S. President Barack Obama after his
re-election fueled worries about global growth and euro zone
data showed the region still struggling.
There was demand at sale of five-year German debt but
appetite was below this year' average with investors put off by
the low yields on offer.
U.S. President Barack Obama won a second term in the White
House after scoring clear victories across the country but
Republicans remained in control of the House of Representative.
Congress therefore still faces a deep partisan divide as it
deals with $600 billion of spending cuts and tax increases that
will be enacted next year, unless agreement over reducing the
U.S. budget deficit is reached.
The "fiscal cliff" threatens to send the United States back
into recession and this threat was keeping safe-haven assets
underpinned, analysts said..
Data on Wednesday showed German output slid by more than
forecast in September, while the European Commision said the
euro zone economy will barely grow next year.
"The whole situation in Congress is unchanged so people are
worried about how to deal with the fiscal cliff. That's very
much what drives safe-haven (demand) here," David Schnautz, rate
strategist at Commerzbank said.
German Bund futures hit a two month high of 142.88
and saw a settlement close of 142.75, up 66 ticks on the day.
That pushed 10-year German bond yields 6 basis
points lower to 1.377, with the U.S. Treasury equivalent down 11
basis points at 1.63 percent. In the secondary market five-year
German yields shed 6 bps to 0.38 percent.
The October 2017 bond was sold at an
average yield of 0.42 percent at the auction, below the 0.53
percent at a similar sale on Oct. 10 and an average of 0.63
percent at 5-year bond sales so far this year.
It drew bids worth 1.5 times the amount allotted to
investors, compared with 2.2 times last month and an average of
2.01 at this year's auctions.
"It's not bad demand given that the five-year now is not as
cheap as it was a few months ago," Alessandro Giansanti, rate
strategist at ING said.
"It shows that even if there has been some rally in the
periphery, the situation is still not totally clear and
investors prefer to keep some position in the core."
EURO ZONE BLUES
Jitters surrounding Greece and Spain persisted, underpinning
demand for safer assets.
In Greece, tens of thousands shouting anti-government
slogans flooded into the main square before parliament on
Wednesday, in a show of anger against lawmakers due to narrowly
pass an austerity package to win aid from lenders and avoid
Spanish bonds came under slight pressure one day before the
country sells 3.5 to 4.5 billion euros of bonds including a new
5-year bond and 20-year debt - the longest dated issue to be
sold at an auction since mid-2011.
"We expect only a small portion of the overall size to be
allocated to this maturity," Schnautz added.
Having completed some 95 percent of its funding so far this
year, Spain is considered to be in a comfortable position and
some say funding pressure will only pile up on the sovereign
next year - when it may be forced to seek formal help which
would trigger European Central Bank support.
Much of the volatility that allows "fast money" accounts
like hedge funds to make profits has died down since the ECB
said in September said it would buy the bonds of euro zone
countries that asked for financial help.
(Editing by Ron Askew)