* Greek bonds rally half a cent on debt buy-back prospects
* Investor sentiment remains cautious, Bund selloff minimal
* Spain to re-enter spotlight in 2013 as funding task
By William James and Emelia Sithole-Matarise
LONDON, Nov 27 Greek bonds rallied on Tuesday
after international lenders agreed a plan to cut Athens' debts,
but even though safe-haven bonds slipped the deal failed to
spark a sea-change in investor sentiment.
The accord will cut Greek debt by 40 billion euros, reducing
it to 124 percent of gross domestic product by 2020 and paving
the way for Athens to receive its next aid tranche in
Greek bonds rallied half a cent to 34.8 cents,
nearing their highest price since being issued earlier this year
during a debt restructuring.
However, market participants said the rally was not built on
confidence that the latest deal had put Greece on a more
sustainable track, but instead reflected one of the more vague
elements of the plan: a proposed buy back of Greek debt.
"In the short term this (buy-back) will reduce stress on the
Greek government bonds but this doesn't solve the main issue of
the sustainability of the debt to GDP ratio," said Alessandro
Giansanti, strategist at ING in Amsterdam.
The International Monetary Fund said it would only pay out
its share of Greek aid once a buy-back, which reduces Greece's
debt because the bonds can be bought at a deep discount on their
face value, had been completed in the coming weeks.
Officials have previously talked of a 10 billion euro
programme to buy debt back from private investors at about 35
cents in the euro, but investors were given little new
information on how purchases would be paid for.
Reflecting investors' underlying caution, safe haven German
Bund futures recovered from knee-jerk early losses of
up almost 60 ticks to settle just 20 ticks lower at 142.23.
SPAIN TO THE FORE
Nevertheless, the lighter market mood helped Spanish 10-year
bond yields extend their recent decline by 8 basis
points to hit a one-month low of 5.55 percent.
With the risk of an imminent Greek default off the table for
now, focus is likely to return to the euro zone's wider problems
of recession and high debt levels, analysts said.
"Growth is the key issue. The euro will survive intact if
the periphery can return to growth," said Chris Scicluna, head
of research at Daiwa Capital Markets.
That is likely to put Spain, where such problems are
particularly acute, and its decision over whether to seek a
bailout programme back in the spotlight.
But, a renewed wave of Spanish selloffs and a marked flight
to quality assets was not seen as imminent.
Spain is fully funded for 2012, benefiting from the European
Central Bank's promise to support struggling peripheral
countries by buying bonds if they request a bailout programme.
"The issue is moved back to next year, the first or second
quarter. The focus will be when they announce how much they want
to issue next year... that will be the critical point," ING's
In 2013, Spain is expected to increase its reliance on bond
markets by up to 20 billion euros to finance budget slippage and
support the country's struggling regions.
An average of major banks estimates put next year's gross
Spanish issuance at 106 billion euros compared to 86 billion in