* Bunds near 2-month highs with investor focus on Greece
* Athens seen getting cash, but no long-term solution
* Start of U.S. budget talks adds to caution
By Kirsten Donovan
LONDON, Nov 16 German government bonds traded
close to two-month highs on Friday, 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 how to
make its debt sustainable, delaying a 31 billion euro aid
payment necessary to keep the country afloat.
Although Athens is expected ultimately to secure the cash
and avoid default this year -- something which has helped push
Greek bond yields lower in recent sessions -- analysts and
traders say a lasting solution may prove elusive.
Euro zone finance ministers meet again next Tuesday, with
IMF Managing Director Christine Lagarde saying a deal should be
Gary Jenkins, director of Swordfish Research, said any deal
would be only a short-term fix.
"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," he said.
"In the meantime, the underlying data is probably not going
to improve so there's going to be continued pressure on these
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.
December Bund futures were 6 ticks lower at 143.07,
trading in a tight range but holding close to Tuesday's
two-month high of 143.48. Ten-year German yields
were down half a basis point at 1.35 percent.
The spread of 10-year Greek bond yields over Bunds was last
around 1,600 basis points, its lowest in just over a week, but
still around 100 basis points more than a month ago.
"It would be a big shock if they didn't get funding this
year as there doesn't seem to be any appetite for trouble ahead
of next year's German elections, so we're probably going to see
a fudged solution for now," a trader said.
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.
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 the closing
levels of Bund futures 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 second trader said.
Spanish 10-year yields have risen around 60
basis points since mid-October and were last a basis point lower
at 5.90 percent.
"The (ECB's bond buying) is beginning to look like a bazooka
that may never get fired," the first trader said.
"It was one thing to buy the bonds in August or September
when you thought the ECB was about to step in but now it's
November and it seems further away than ever. You're not
necessarily comfortable holding Spain with year-end
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.