* Greek default risk eased but aid doubts support Bunds
* Focus falls on auctions at opposite ends of credit scale
* Italy to sell 5 bln, Germany issues new zero coupon Schatz
By William James
LONDON, Nov 14 Bund futures held firm near
recent highs on Wednesday, supported by uncertainty over whether
Greece will receive aid payments, though the immediate focus was
on Italian and German debt sales.
While Greece is thought to have averted a near-term default
after selling bills on Tuesday, international lenders disagree
on how Athens can bring its debt down to a sustainable level,
and a deal to release aid payments remains some way off.
"The final decision on the release of the next aid tranche
is delayed ,which makes for pretty strong headline risks. All
this suggests Bunds will remain underpinned at these lofty
levels," said Commerzbank strategist Michael Leister.
Bund futures were 10 tick lower on the day at
143.04, having hit a two month high on Tuesday at 143.48 -- an
area which technical charts suggested could provide significant
Despite the barriers to a fresh rise, traders said Bunds
were unlikely to fall far from current levels with medium-term
concerns about sluggish global economic growth, and the looming
threat of recession-inducing tax hikes and spending cuts in the
"There's no real reason for huge optimism in Greece --
stocks aren't trading well either and economic data looks weak
so I think Bunds are OK at these levels," a trader said.
Upcoming bond sales from Italy and German, which sit at
opposite ends of the euro zone credit spectrum, will provide
some insight into investors' appetite for risky investments.
Triple-A rated Germany launches a new two-year bond with a
zero percent coupon, meaning it is effectively able to borrow
for free because investors prize the country's strong fiscal
position and highly liquid debt markets.
"German auctions are a function of risk appetite and
clearly, looking at the current levels, risk aversion has come
back. Even though it might go on to trade at negative yield in
the secondary market, there's still decent demand out there,"
The existing German two-year benchmark was trading at a
yield of -0.036 percent, meaning anyone who bought
the debt at current prices was expecting to get back less than
their original investment when the bond matures.
Italy, one of the bloc's weaker peripherals states, sells up
to 5 billion euros of three-, 11- and 17-year bonds.
While yields on Italy's bonds remain well below their highs
thanks to the European Central Bank's promise to support
struggling countries if necessary, demand for Italian debt has
waned in line with the recent move away from lower-rated assets.
The 10-year Italian yield was down 3 basis
points on the day at 4.94 percent, still some 20 bps above the
year's lows reached in mid-October.
"Despite the underperformance of periphery paper our view is
that flows remain firmly two-way in Italian paper and would
expect the auction to go off without undue difficulty," Credit
Agricole strategist Luca Jellinek wrote in a note.