* Sale of 2044 German bond technically uncovered
* Investors put off by record low yields
* Upcoming Italian debt auction seen limiting Bund sell-off
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, April 25 German government bond yields
rose on Wednesday after an auction of long-term debt drew less
in bids than the amount on offer, a sign that flows into
safe-haven assets may have been exaggerated.
While for the moment investors appear reluctant to add to
their Bund investments, bond strategists do not rule out further
tests of record low yield levels given the myriad of obstacles
the euro zone faces in solving its debt crisis.
Spain and Italy have moved to the forefront of the crisis
again, and investors remain nervous about an Italian debt
auction later this week, with traders saying most of the flows
in the two bond markets are short-term, speculative trades and
volumes are thin.
The 10-year German bond yield rose 4 basis
points to 1.66 percent, while 30-year yields rose
3.5 bps to 2.455 percent, still not far from a record low of
2.337 percent hit in January.
At the auction, the average yield for the 2044 bond was 2.41
percent, less than the 2.62 percent achieved at the 30-year sale
on Jan. 25. It carried a 2.5 percent coupon, the lowest-ever on
a German ultra-long bond.
"(The auction) shows that investors are not willing to trade
any bit of yield for security. At these levels the air is
getting a bit thinner," said Viola Stork, fixed income analyst
at Helaba Landesbank Hesse-Thueringen.
"But in the bond universe Bunds are still the one safe haven
asset. Whenever there is bad news about Italy and Spain ...
Bunds will be in heavy demand again and it is possible that
we're going to see another record low."
The German Bund future was last down 44 ticks on
the day at 140.18, driven lower also by upbeat results from U.S.
giant Apple, which soothed worries about the earnings
season and spurred risk appetite.
Another stabilising factor for debt markets on Wednesday was
that long-term investors such as insurers or pension funds were
seen snapping up French and Dutch paper after a heavy round of
selling at the start of the week.
These bonds came under pressure on Monday due to worries
that the political developments in the two countries -
presidential elections in France, and the collapse of the ruling
coalition in the Netherlands - may lead to less fiscal
But it did not take long before those yields became
attractive for "real money" investors, which still see the two
countries as a safer alternative in a debt world marked by
"Netherlands and France are coming back, stock markets are
recovering a bit too... Monday seems to have been a panic move
and ever since then the market's been coming back in, which is
bad for Bunds," a trader said.
The downside for the Bund future was seen limited ahead of a
bout of more Italian supply this week.
Italy will offer up to 6.25 billion euros of bonds on
Friday, including five- and 10-year debt, after a sale of 8.5
billion euros in six-month treasury bills on Thursday.
"Usually we would expect some price concessions going into
this auction, which also helps the Bund future," said Rainer
Guntermann, strategist at Commerzbank.
Italian 10-year yields were 3 bps lower on the
day at 5.65 percent, while the Spanish equivalent,
not under immediate supply pressure, fell 6 bps to 5.82 percent.
The Federal Reserve resumes its two-day meeting later, with
its concluding statement expected to show the central bank is
slightly more upbeat on the economy but in little hurry to raise
Markets are positioned for a "wait and see" signal and
investors hoping for clues on the prospects of further monetary
easing by the U.S. central bank may be disappointed.
"Markets are rather cautious to enter risky positions. (The
outcome) is open ... for either direction," Helaba's Stork said.