LONDON, July 14 Bund futures rose on Thursday as
demand for AAA-rated German debt increased after Moody's said
the United States could lose its top-notch credit rating unless
policymakers agree to raise the country's borrowing
Concern about the euro zone's own problems also grew over
delays to policymakers' plans to discuss the region's deepening
debt crisis and after Greece's credit rating was downgraded late
in the previous session.
The fresh blows to already-fragile market sentiment came
ahead of a closely-watched bond auction from Italy which will be
a key indicator of whether recent heavy pressure on the country
will affect appetite for new debt issues.
Bund futures FGBLc1 were 32 ticks higher at 128.67. On
Tuesday they reached their highest since November at 130.91.
"(U.S.) Treasuries seem to have shrugged off the debt
warning so far which is a bit surprising. In theory Bunds should
outperform, but we're somwhat at the whim of periphery there so
it makes it hard to call," a trader said.
Fitch Ratings on Wednesday downgraded Greece deeper into
junk territory, citing the absence of a new and fully funded
financing program for the country.
Meanwhile euro zone ministers, who had been expected to meet
on Friday, were now unlikely to meet until next week to discuss
Greece's new bailout deal and the thorny issue of how to inflict
some of the cost on private bondholders.
Italy will auction five- and 15-year benchmark bonds along
with taps of two off-the-run lines for a total of up to 5
The sales have gained significance due to mounting market
concerns over the cost of financing the country's large public
debt after 10-year yields briefly topped 6 percent this week.
Although some tension around Italy has eased, political
uncertainty over new deficit-busting steps has dragged the euro
zone's third largest economy into the firing line of investors.
"We would not be surprised to see further concessions into
the supply itself, while Italy accessing the markets should help
confidence and act as a catalyst in terms of support for BTPs
post the auction," Barclay's Capital said in a note.
(Reporting by William James)