* Spanish yields higher after ministers say aid not needed
* Bunds edge lower, mark time waiting for Spain
* The Netherlands sells 5-year bonds
By Kirsten Donovan
LONDON, Oct 9 Spanish government bond yields
edged up on Tuesday after euro zone ministers said it did not
need a bailout yet, adding to concern that Madrid is set to
dither too long before asking for more aid.
German government bonds also dipped in choppy trade after
officials meeting in Luxembourg said Spain was taking steps to
overhaul its economy and was funding itself successfully in
financial markets, dashing hopes for a swift move to end the
debt problems of the euro zone's fourth largest economy
Investors expect that Madrid will ultimately have little
choice but to ask euro zone authorities to start buying its debt
on markets. But while there are no signs of that being imminent,
bonds of both Germany and Spain are likely to trade around
"I think volatility will continue to drift lower while we
wait for something from Spain," one trader said.
"We'll probably stay in this status quo and then it will all
come down to them to decide what they will do."
The International Monetary Fund said in its latest round of
global reports that Spain will miss its deficit targets this
year and next and debt will jump to more than 90 percent of
gross domestic product in 2013 as the country recapitalises its
"It's difficult to envisage a scenario where Spain doesn't
ask for a bailout...the dominant market discount is that some
form of bailout is agreed over the next number of weeks," said
ING's head of investment grade strategy Padhraic Garvey.
"There's no panic, the market is not necessarily going to
punish Spain on a whim."
Spanish government bond yields have settled far below their
July highs of over 7.5 percent. Ten-year yields
were 4.5 basis points higher on the day at 5.78 percent.
"At 10-year yields comfortably below 6 percent, the Spanish
government remains loath to compromise on conditions, hoping
that a rating affirmation by Moody's this month will buy more
time," Commerzbank strategists said in a note.
German Bunds remained locked in a range with futures
bouncing broadly between 141.00 and 142.00 in recent
"I can't see us moving far from that until we get something
more concrete on Spain," a trader said.
"People aren't carrying huge amounts of risk and there's
still buying of dips in Bunds...the periphery has done well and
we're seeing some of the (fast money) take profits there and
move back to the core," he added, referring to accounts such as
hedge funds who take short-term positions in the markets.
Bund futures were 16 ticks lower at 141.23, having earlier
risen as high as 141.57. Ten-year cash yields were up almost two
basis points at 1.49 percent.
UBS technical analysts Richard Adcock said a break below
140.60 - the 38 percent retracement of September's rally would
risk a further sell-off in the futures contract to 139.76 and
the Sept. 17 low at 138.41, the bank's target level.
The Netherlands kicked off the week's bond auctions, selling
2.26 billion euros of 2018 bonds.
"The paper was easily absorbed today," said Annalisa Piazza,
market economist at Newedge Strategy.
Analysts cited the paper's relative cheapness when compared
with other Dutch bonds of similar maturities, combined with the
country being close to wrapping up its 2012 issuance with just
two more auctions scheduled.
"The lack of near-future supply for the Jan-18 (bond)is also
a supportive factor for the paper going forward," Piazza said.
Germany will test appetite for its 5-year bonds on Wednesday
with Italy coming to market with up to 6 billion euros of BTPs
on Thursday .