LONDON Jan 16 German Bunds rose on Monday
and bonds issued by euro zone's most indebted sovereigns were
expected to come under renewed pressure after a mass downgrade
by Standard & Poor's left the bloc more vulnerable to the debt
S&P downgraded on Friday the ratings of Italy, Spain,
Portugal and Cyprus by two notches and the standings of France,
Austria, Malta, Slovakia and Slovenia by one notch each.
Germany's triple-A rating remained intact.
The downgrade, although expected, raises concerns about the
triple-A rating of the euro zone's EFSF bailout fund, adding to
doubts that the bloc's anti-crisis tools were powerful enough.
The fact that Germany is still top-rated, despite warnings
last month from S&P that it could be downgraded by a notch, is
expected to put further widening pressure on yield spreads.
Further hurting the confidence in the currency union's
chances to muddle through the crisis, negotiations on a debt
swap by private creditors seen as crucial to avoid an unruly
Greek default broke up without agreement in Athens.
"I just want to be long Bunds, five-years and 10-years.
They're going up," one trader said.
At 0704 GMT, Bund futures were 13 ticks higher on
the day at 140.07, having hit a record high of 140.23 on Friday.
Ten-year cash yields were 1.5 bps lower at 1.757
Investors will be on alert for European Central Bank forrays
into the secondary market, with the perception of its commitment
to keep borrowing costs for Italy and Spain affordable seen as
key to prevent a fast escalation of the crisis.
Italy takes a break from supply this week, but Spain comes
to the market with sales of 2016, 2019 and 2022 bonds.