* Positive tone to U.S. talks dampens safe-haven appeal
* German Bund yields still at historically high levels
* Release of Greek aid could push Bund yields up to 1.4 pct
By William James
LONDON, Nov 19 German Bund futures slipped on
Monday on optimism U.S. policymakers would make progress towards
averting a round of growth-crimping spending cuts and tax rises,
though worries over aid for Greece were seen limiting falls.
Leading lawmakers expressed confidence on Sunday that they
could reach a deal to avert the $600 billion "fiscal cliff",
even as they took positions on taxes and spending that may make
any agreement more difficult.
Bund futures fell 23 ticks to 143.08 but remained
firmly within the 142.83 to 143.48 range that held throughout
last week. U.S. debt futures also dipped and equity markets
"The positive chatter on the fiscal cliff is the main
driver... If these hopes build then maybe the sell-off will get
a bit of traction but I still get the impression there are
people out there looking to buy dips," a trader said.
Safe-haven assets have rallied since U.S. presidential
elections confirmed a polarised political landscape, decreasing
the likelihood of an easy solution to the looming fiscal crunch.
Despite the weaker start, German debt prices remain at
historically high levels, supported by uncertainty over the
payment of much-needed aid to Greece and concern over how long
Spain will take to request a bailout.
Euro zone finance ministers will meet on Tuesday to discuss
how to solve Greece's debt problems -- the latest in a long line
of meetings between international lenders, some of whom are keen
to find a lasting debt solution before releasing more funds.
European Central Bank policymaker Joerg Asmussen said on
Sunday a deal on the next two years of Greek funding should be
agreed, confirming the view of many in markets that the meetings
will result in an aid payment but no radical long-term plan.
Nevertheless, with 10-year German Bund yields
at 1.34 percent and towards the lower end of the range in place
since early August, there was room for yields to rise if
policymakers reached an agreement, analysts said.
"Negative news on Spain and Greece has been priced in over
recent weeks, so any news that's not as bad the market expects
will be negative for Bunds and see some positive movement in
spreads," said Alessandro Giansanti, strategist at ING.
Bund yields could rise back to 1.4 percent if the Eurogroup
meeting produces an outcome interpreted as positive by the
market, he said.
The yield spread between Spanish and German
10-year bonds was 3 basis points tighter on the day at 455 basis
points, driven mostly by the rise in Bund yields.
Spain is set to keep cashing in on relatively low borrowing
rates despite looking increasingly unlikely to request a
bailout, which markets believe it needs, before the end of the
Even though Spain reached its 2012 funding target earlier
this month, Madrid will issue three- five- and nine-year debt on