By Emelia Sithole-Matarise
LONDON, Sept 23 Euro zone government bonds edged
up on Monday, with investors seeing little change in German's
supportive policy towards the region's weaker economies after
Chancellor Angela Merkel won a third term.
Market reaction was, however, muted as investors were
reluctant to put on big positions before preliminary euro zone
manufacturing data due at 0758 GMT.
Investors were keen to see the shape of the new government
in euro zone paymaster Germany. Merkel won a landslide personal
victory on Sunday although her conservatives appeared just short
of the votes needed to rule on their own.
Merkel's party may have to convince leftist rivals to join a
coalition after their current allies, the Free Democrats (FDP)
suffered a humiliating exit from parliament.
"It's somewhat positive for peripheral markets which have
done quite well in recent days but we don't expect big moves as
this was expected," said KBC strategist Piet Lammens.
"It might start to get things moving again in Europe...
Maybe we can get some breakthroughs on the banking union or
another aid package for Greece."
Italian 10-year yields were down 0.7 basis points down at
4.29 percent while Spanish equivalents were 1.1
bps lower at 4.32 percent.
Italian yields have fallen since last week on easing
tensions after former premier Silvio Berlusconi stepped back
from threats to torpedo the government as lawmakers moved closer
to banning him from parliament after his tax fraud conviction.
Underpinning the firmer tone in peripheral markets, Moody's
on Friday moved closer to upgrading Ireland's credit rating to
investment grade by moving its outlook to stable from negative.
But it warned the government against easing off on austerity.
It is the last of the three main rating firms to class Irish
government debt "junk", rating it Ba1, and the outlook change
may fuel expectations of an upgrade before the country exits its
85 billion euro EU/IMF bailout later this year.
Data last week showed Ireland emerged from its second
recession in five years in the second quarter. Irish yields
were last 2.3 bps lower at 3.87 percent, their
lowest in nearly six weeks.
German Bund futures were last 24 ticks up at 138.56
with cash 10-year yields 2.1 bps lower at 1.88 percent.
While many saw little change in German policies towards the
euro zone resulting from a coalition between the conservatives
and either the Social Democrats or the Greens, some in the
market said lengthy talks could unsettle markets.
"A grand coalition may also become unstable in the long run,
as the SPD will likely try to avoid the same fate as in 2005-09
when it lost substantial voter support following its
participation in a Merkel-led grand coalition government," Citi
strategists said in a note.