* Questions over Greek buyback keep investors cautious
* Technical charts hint at rise to Bund range high
* Peripheral rally stalls, investor sentiment split
By William James
LONDON, Nov 30 German Bund futures held firm
within sight of recent highs on Friday after a turbulent week of
trading with investors cautious over how a deal that saw aid
funds released to Greece would be implemented.
The deal, agreed earlier this week between euro zone finance
ministers and the International Monetary Fund, had dented the
appeal of Bunds. But doubts about the plan quickly resurfaced
and highly liquid German debt, to which investors turn in time
of stress, recovered losses.
The Bund futures contract was four ticks higher on
the day at 142.88, closer to the Nov. 13 high of 143.48 than the
bottom of the recent range marked on Tuesday at 141.84.
"This reflects the fact that to a certain degree the market
is not convinced about that deal," said Christian Lenk, fixed
income analyst at DZ Bank in Frankfurt.
Questions centred on the proposal to buy back a portion of
Greek debt, with a lack of clarity about how the operation will
be funded, and how repurchase prices will be decided, keeping
investors on edge.
"Uncertainty around eventual take-up at this reverse
operation and the prospect of 'holdouts' again complicating the
picture risk another unwelcome flare-up in market tensions,"
Lloyds Bank strategists said in a note to clients.
"This backdrop should prove sufficient to attract funds back
into core product at higher yield levels, thus effectively
providing a near-term cap to core fixed income rates."
Technical charts showed support for Bund futures at 142.62,
the mid-point of Tuesday's steep sell-off and a shift in
momentum towards fresh rises.
"As long as 142.62 is support we're happy bulls and
expecting an assault on 143.48," said Futurestechs technical
analyst Clive Lambert.
YIELD HUNT PAUSES
Spanish and Italian 10-year bond yields were also stable in
early trading at 5.36 percent and 4.54 percent
Investors hungry for higher yielding debt have piled into
the euro zone's peripheral markets this week, pushing Italian
10-year yields briefly to a two-year low, but after such sharp
moves traders saw limited room for a further rally on Friday.
"Yesterday morning (peripheral debt) went off to a flyer and
then gave it all back in the afternoon. It's had a good week but
I still don't think we're out of the woods," a trader said.
The risk that the U.S. economy could slip into recession if
lawmakers fail to find a way around $600 billion of automatic
spending cuts and tax hikes due early next year was also a
limiting factor for peripheral debt, the trader said.
The U.S. "fiscal cliff" problem, along with concerns over
the health of Spain's economy, was likely to keep euro zone
markets in their current unusual state -- where both low-risk
and high-risk assets are in high demand.
"Everybody is a little bit split. You want to be in the
rally in the periphery but on the other hand you don't want to
get completely out of your safe haven," Lenk said.