* Questions over Greek buyback keep investors cautious
* Technical charts hint at rise to Bund range high
* Spanish bond yield edge up as ICO issue seen faltering
By William James
LONDON, Nov 30 German Bund futures held firm
within sight of recent highs on Friday as a turbulent week of
trading ended with investors cautious over the implementation
of a deal to release aid funds to Greece.
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 surfaced and
highly liquid German debt, to which investors turn in time of
stress, recovered losses.
The Bund futures contract was last seven ticks
higher on the day at 142.91, closer to the Nov. 13 high of
143.48 than the bottom of the recent range marked on Tuesday at
"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 investors on edge over a lack of clarity about
how the operation will be funded and how repurchase prices will
"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 indicators 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
The subdued trading session brought a halt to the week's
strong rally in peripheral debt, which briefly pushed Italian
10-year yields to a two-year low on Thursday.
Italian 10-year bond yields were steady on the
day at 4.55 percent and Spanish equivalents rose 6
basis points to 5.42 percent, unwinding a portion of the 70
basis point rally seen since mid-November.
Traders said the new-found confidence in Spain had taken a
knock with sources familiar with a bond issue from
state-controlled credit agency ICO saying investors were not
rushing to buy.
"Maybe it's because it's month-end and people are busy
elsewhere but this ICO issue seems to be going a bit slowly and
that's weighing on the sovereign market," a trader said.
A second trader said the peripheral rally may have run its
course for the near term due to the looming risk that the U.S.
economy could slip into recession if lawmakers fail to avert
$600 billion of automatic spending cuts and tax hikes.
The U.S. "fiscal cliff" problem, along with concerns over
the health of Spain's economy, were 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.