* Bunds dip as Fed expected to continue monetary easing
* Greek buy-back result seen acceptable
* Italian bonds continue to recover after Monday sell-off
By Marius Zaharia
LONDON, Dec 12 German bond prices dipped on
Wednesday as investors anticipated more Federal Reserve stimulus
and felt confident Greece's buy-back deal will lead to the
disbursement of further aid tranches to Athens.
Traders also cited a rebound in Italian debt following a
Monday sell-off triggered by Prime Minister Mario Monti's
decision to step down early as a factor weighing on Bunds.
The Fed is expected to announce a new round of Treasury
bond purchases later on Wednesday, with economists polled by
Reuters forecasting it will opt for monthly purchases of $45
Traders say that if the Fed does that, a rally that has
taken European shares to 18-month highs could continue. That in
turn could weigh on safe-haven assets outside the United States,
such as Bunds.
"Markets are expecting support coming from the U.S. given
ongoing growth uncertainty," ING rate strategist Alessandro
Giansanti said. "Also the Greek buy-back ... means that the
troika will release the next tranche and that is supportive for
the whole euro area."
Bund futures fell 25 ticks on the day to 145.16,
while cash 10-year yields rose 2.2 basis points to
The Greek debt buy-back scheme, a key condition for further
aid tranches to be released, left international lenders with a
450 million euro hole in their plan to cut the country's debt to
a more manageable level.
But analysts were confident that Greece would still get the
funds it needs to stay afloat.
"It's too narrow a gap to be a big problem. There's too much
capital already invested in the exercise (of bailing Greece
out)," Rabobank market economist Elwin de Groot said.
Greek bonds continued to rally as holders expect to be paid
in full now that the amount of debt owned by private investors
is too small for a restructuring of those bonds to make a
significant difference in terms of debt sustainability.
The yield on Greece's February 2023 bond fell
92 basis points to 12.67 percent.
Italian bonds recovered a large chunk of their Monday losses
triggered by Monti's announcement. Ten-year yields
fell 6 bps on the day to 4.68 percent, versus last week's close
of 4.52 percent and this week's high of 4.95 percent.
Many investors believed the technocrat was the best-placed
person to reform Italy and bring down its huge debt levels. The
re-emergence of his flamboyant predecessor Silvio Berlusconi - a
pariah for markets - also played a role in the sell-off.
But analysts say the initial market reaction was a
consequence of a rushed decision by many investors, who are now
reassessing the situation. Italy had already planned elections
early next year.
"The resignation is an eye-popping measure, but now the
elections are being brought forward by six weeks. That's not a
big deal," KBC strategist Piet Lammens said.
"The polls talk about a big advantage for the centre-left
party ... while Mr. Berlusconi's party is on the losing side."
One-year T-bill yields fell to their lowest in nine months
at an auction on Wednesday.
A perception that U.S. lawmakers were getting closer to a
deal to avert large-scale fiscal tightening next year also
helped high-yielding assets and weakened Bunds.
President Barack Obama and U.S. House of Representatives
Speaker John Boehner spoke by phone on Tuesday to exchange new
proposals, in what investors saw as a sign of urgency.
"It is a very fluid situation, but I think the pendulum has
swung to being a little bit more positive this week," one trader