* Bunds rise as data reinforces accommodative rate policy
* G20 meeting unlikely to soothe euro strength concerns
* Bunds meet resistance around 143 level
* Italian bonds seen vulnerable in run-up to elections
By Ana Nicolaci da Costa
LONDON, Feb 15 German Bunds rose on Friday, a
day after euro zone data reinforced the case for the ECB to hold
down borrowing costs and before a G20 meeting that is thought
unlikely to soothe concerns about a strong euro.
But the gains were limited as the Bund met technical
resistance at around 143 - a level it has repeatedly tested in
February and has failed to break sustainably.
Officials from the Group of 20 major economies struggled to
find a common form of words on currency manipulation before
Friday's summit. "Currency wars" were expected to
feature high on the agenda.
"The market thinks the G20 cannot do very much about this,
it basically means that the euro in 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 17 ticks to 142.76, having
rallied half a point on Thursday after data showed the euro zone
fell deeper into recession than expected in the fourth quarter
of 2012. Christian Lenk, strategist at DZ Bank, said 143 "is a
important resistance zone at the moment."
ACCOMMODATIVE RATES POLICY
Euro zone money market rates dropped on Thursday after the
disappointing euro zone growth data.
Their rise was arrested by ECB President Mario Draghi who
said last week he would monitor money markets to ensure policy
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.
Banks will pay back 3.79 billion euros ($5 billion) next
week of 3-year loans they took from the ECB just over a year
ago, bringing the total payback of the first 489 billion in
loans to 149 billion.
Norbert Aul, rates strategist, at RBC Capital Markets also
saw the Bund's rise as 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 market wasn't fully pricing in the risks
associated with this month's Italian election, including that of
a hung parliament.
"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
down 2 basis points at 4.37 percent. The Spanish equivalent
was flat at 5.20 percent.