* Bond markets stuck in cautious mood after Cyprus bailout
* Peripheral yields steady, but seen rising in coming week
* Charts point to fresh rise for safe-haven Bund futures
By William James
LONDON, April 2 Euro zone bond markets began the
week in cautious mood with peripheral bond yields holding at
elevated levels as the impact of Cyprus's landmark bailout and
Italy's political stalemate unnerved investors.
Cyprus detailed losses over the weekend of around 60 percent
for savers of more than 100,000 euros as part of a bailout
agreed just over a week ago. The deal was the first in euro zone
history to make bank depositors share the burden.
Despite attempts to stress that Cyprus was unique, for
investors the focus is on whether a similar model may be applied
to any future bailouts elsewhere in the euro zone.
"Risk-off is still dominating," said Michael Leister,
strategist at Commerzbank in London. "Whenever we talk in the
future about bank aid or bailout we will have these loss
Although Cyprus's banks reopened in orderly fashion on
Thursday, allaying fears of long queues to withdraw cash,
markets are still wary that the precedent set by the bailout
could spur withdrawals from banks in Spain and Italy and
destabilise an already-weakened banking system.
Bonds issued by the euro zone's lower rated issuers, such as
Spain and Italy, were broadly steady in early trading, although
yields were expected to rise in the coming days, adding to a
steady climb over the last two weeks.
Italian 10-year yields were down 1 basis point
on the day at 4.73 percent while equivalent Spanish yields
were down by the same amount at 5.05 percent.
Italian yields have risen 21 bps since March 22, due also to
its struggle to form a government after elections in February
which failed to produce a clear winner.
Italy's president acknowledged on Saturday that he had
limited scope to force divided political parties to find a
solution, but ruled out standing down early to make way for new
Demand for the safety and liquidity of German Bunds kept
futures contracts steady at 145.45, down 4 ticks on the
day but within sight of near four-month highs at 145.87 set on
Thursday before the Easter break.
Bunds were also supported by data released when European
markets were closed on Monday, which showed U.S. manufacturing
slowed in March, denting optimism about global growth and
boosting the appeal of low-risk bonds.
Analysis of price moves from Thursday pointed to fresh
gains, according to UBS.
"This maintains the pattern of higher highs/higher lows and
with the MACD (moving average convergence-divergence) above zero
and the momentum indicators rising strongly, the expectation is
still for limited corrections and further price strength," said
UBS technical analyst Richard Adcock.