* Greek aid tranche delayed again, Eurogroup meets Monday
* Germany sells 3.25 billion euros of bonds
* Demand for safe-haven assets remains strong
By Kirsten Donovan and Marius Zaharia
LONDON, Nov 21 German Bunds slipped on Wednesday
as euro zone leaders soothed concerns about the failure so far
of Greece's international lenders to reach a deal needed to
release more aid to Athens.
Euro zone finance ministers, the International Monetary Fund
and the European Central Bank will meet again next Monday to try
to work out how to get Greece's debt down to a sustainable
The lack of consensus leaves the market no choice but to
price in the possibility that Greece may receive no further help
and slide into an uncontrolled default that could pitch it out
of the currency union.
But markets took some comfort from German Chancellor Angela
Merkel saying she saw a chance for a deal on Monday and that
lower interest rates and an expanded European Financial
Stability Fund could fill Greece's funding gap.
France said a deal was "a whisker away" and
Eurogroup Chairman Jean-Claude Juncker attributed the delay to
"The market has concluded it's just a matter of time before
Greece gets its funding," said Nick Stamenkovic, rate strategist
at RIA Capital Markets.
"There's a commitment amongst all EU members, the ECB and
the IMF to keep Greece intact within the single currency so
they'll find some way to meet any funding gaps."
Bund futures settled 21 ticks lower at 142.17,
having traded as high as 142.64 before Merkel's comments. On
Tuesday, bets that a deal would be reached pushed them 62 ticks
Cash 10-year Bund yields were 2 basis points
higher at 1.437 percent, in the middle of a roughly 50 basis
points trading range that has held for the past six months.
"There is general quietness ahead of Thanksgiving," a trader
said, adding that he expected that to last the rest of the week
with U.S. markets closed on Thursday.
UBS rate strategist Gianluca Ziglio said Bunds may lose
further ground once the Greek aid tranche is released, as
markets remove the "tail risk" from the price.
Greek debt markets, which are dominated by hedge funds that
are willing to take higher risks than other investors, rallied.
The 10-year Greek bond yield was 36 basis points
down on the day at 16.81 percent, falling for the ninth
Still, the lack of resolution on Greece as well as broader
euro zone debt problems ensured that an auction of 10-year
German government bonds drew solid demand despite low returns.
Spanish 10-year yields fell 13 basis points on
the day to 5.73 percent, with traders citing buying from
domestic investors before Thursday's auction of three-, five-
and nine-year bonds.
"I wouldn't be surprised - we've seen that happening - if
there was some sort of moral suasion on Spanish banks to buy the
paper ahead of auctions to make dealers short and buy the paper
at the auction to cover themselves," Ziglio said.
"It basically creates additional demand that otherwise
wouldn't be there."