* Bunds rise as data reinforces accommodative rate policy
* G20 meeting unlikely to soothe euro strength concerns
* Italian bonds seen vulnerable in run-up to elections
By Ana Nicolaci da Costa
LONDON, Feb 15 German Bunds rose on Friday the
day after euro zone data reinforced the case for an
accommodative rates policy while analysts said a Group of 20
meeting was unlikely to soothe concerns about a strong euro.
The so-called "currency wars" will feature high on the
agenda of the meeting in Moscow and hosts Russia say the G20
will back the thrust of a G7 text which reaffirmed a commitment
to floating exchange rates.
"The market thinks the G20 cannot do very much about this,
it basically means that the euro in the current conditions will
have a tendency to appreciate ...," Elwin de Groot, senior
market economist, at Rabobank said.
"Taking these things together - economic weakness (and)
persistent prospect of potential further upward pressure on the
euro - that could provoke action by European monetary
policymakers. For the Bund, it's positive because it raises the
potential for falls in money market rates."
German Bund futures rose 27 ticks to 142.86, having
rallied half a point on Thursday after data showed the euro zone
fell deeper into recession than expected in the fourth quarter
Euro zone money market rates dropped on Thursday after the
disappointing data. Their rise was arrested by
ECB President Mario Draghi who said last week he would monitor
money markets to ensure policy remains "accommodative".
He was referring to the rise in money market rates after the
higher than expected repayment of ECB crisis loans was seen by
many as a de facto tightening of ultra-loose monetary policy and
as one reason why the euro strengthened.
Norbert Aul, rates strategist, at RBC Capital Markets also
said the rise in the Bund was a continuation of the previous
day's trend driven by weak euro zone gross domestic numbers and
an accommodative stance by the ECB.
ECB Vice-President Vitor Constancio said on Thursday that
the ECB is technically ready but has not decided whether to
lower the interest rate on banks' deposits at the central bank
into negative territory.
"The ECB verbally intervened already in terms of
highlighting their accommodative stance at the past press
conference. ECB's VP Constancio actually went one step further
as he opened up the discussion about negative rates again," Aul
Aul also said the risks associated with the Italian
election, including that of a hung parliament, were not
sufficiently priced in by the market.
"This should weigh on peripherals in the run-up to the
elections and, depending on the election outcome, potentially
also after that, which is another factor to support Bunds."
Ten-year Italian government bond yields were
up 3 basis points at 4.42 percent. The Spanish equivalent
were 4.1 bp higher at 5.24 percent.
(Editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)