LONDON Jan 28 Greek yields slipped on Tuesday
as the selloff in riskier assets paused, but they remained near
2014 highs with the country seen as the most vulnerable in the
euro zone to contagion from emerging market turbulence.
The rout in emerging currencies that hit Greek bonds in
recent sessions eased as the Turkish central bank announced an
emergency meeting that many in the market expect will see it
deliver an interest rate hike to bolster the lira currency.
The market, however, remained edgy with many reluctant to
increase exposure to higher-yielding bonds on persistent worries
that a cut in U.S. stimulus could rekindle the selloff in
Greek 10-year yields were last 13 basis points
down at 8.50 percent, having risen as high as 8.90 percent on
Monday. Yields on similarly junk-rated Portuguese bonds were 9
bps lower at 5.11 percent.
"We are coming back a little bit now in risky assets. But
given the nature of emerging markets it's difficult to rule out
that it's over," said Philip Tyson, a strategist at ICAP.
"All these risky assets got hit and Greece being one of the
riskiest in Europe was hit the worst. There's room for it to
come back a little bit further if we start seeing a little bit
more stabilisation creeping into emerging markets."
The tentative recovery in higher-yielding assets helped
Italian and Spanish yields resume their falls, supported by 16.8
billion euros in coupon and debt repayments due from both
countries this week expected to be reinvested into the bonds.
Italian 10-year yields were last off 5 bps at
3.85 percent, with a sale of inflation-linked bonds later in the
day expected to fare well. Spanish equivalents
were 4.4 bps lower at 3.72 percent.
Among higher-rated euro zone bonds, German Bund futures
shed 27 ticks on the day to 142.28, pushing cash
10-year yields 2.2 bps higher to 1.69 percent.
German yields are seen grinding higher on some expectations
that the Fed could this week maintain or reduce its monthly bond
buying by a further $10 billion despite the latest turmoil in
emerging markets. It announces its policy decision on Wednesday.
"We see good reason for the Fed to stand by its pace of
'tapering'. The recent deterioration in emerging markets will
not prompt the Fed to alter its policy, in our view," BNP
Paribas strategists said in a note.