* Bunds edge up highs with investor focus on Greece
* Risk aversion keeps futures near two-month highs
* Start of U.S. budget talks adds to caution
By Kirsten Donovan
LONDON, Nov 16 German government bonds edged up
on Friday, holding near two-month highs, with anxiety over
Greece's debt sustainability and the U.S. "fiscal cliff" pushing
investors towards the safety of low-risk assets.
Greece has taken centre stage in the three-year-old euro
zone crisis as its international lenders squabble over its
longer-term debt sustainability, delaying a 31 billion euro aid
payment necessary to keep the country afloat.
Euro zone finance ministers meet again next Tuesday, with
IMF Managing Director Christine Lagarde saying a deal should be
The IMF wants a solution that would bring Greek debt down to
120 percent of economic output by 2020 but a senior euro zone
source told Reuters this week that finance ministers would only
attempt to close the financing gap to 2014.
"On Tuesday night we'll know how they're going to kick the
can down the road and there will probably be a sense of relief
some kind of agreement has been reached and that will probably
help Spanish bonds as well," said Gary Jenkins, director of
"In the meantime, the underlying data is probably not going
to improve so there's going to be continued pressure on these
December Bund futures were 11 ticks higher at
143.24, holding close to Tuesday's two-month high of 143.48.
Bunds have rallied since mid-October when it became apparent
that Spain was in no hurry to request financial assistance --
something that would allow the European Central Bank to buy its
bonds -- as investors booked profits on higher-yielding
peripheral bonds and moved back into safe-haven assets.
But the stagnation in the market is evident in closing
levels since last Friday, with three settlements coming at
143.14 and the other two at 143.13 and 143.17.
"Greece, Spain, the U.S., it's the same themes but no
developments, people stay risk averse and the market moves
sideways," a trader said.
Ten-year yields were down a basis point at
Spanish bond yields have risen around 60 basis
points since mid-October and were last 3 bps lower at 5.89
Greece will repay a maturing 5 billion euro T-bill on
Friday, having raised funds for the redemption earlier this week
while it waits for the European Union and International Monetary
Fund to agree to release the delayed emergency loans.
The EU's top economic official sought on Thursday to rule
out any write-off of Greece's debt to governments. The IMF
argues a write-down is necessary to put the country on a
sustainable financial path.
In the United States, budget talks start later on Friday,
with fears of a protracted stand-off also whetting investors'
appetite for lower-risk assets.
Failure to reach a compromise on $600 billion of spending
cuts and tax hikes that kick in in January could pitch the
United States back into recession.