LONDON Feb 22 German Bund futures hovered around four-week highs on Friday, with worries about the euro zone's economic outlook and the Italian elections expected to keep safe-haven debt well bid.
Key for the region's benchmark bonds will be the amount of three-year crisis loans that banks will pay back to the European Central Bank. Banks are expected to pay back 130 billion euros of the 530 billion euros they took a year ago, when the ECB flooded the banking sector with cash to prevent a credit crunch.
That amount is slightly less than the 137 billion euros which was repaid in January when the first of the two three-year lending operations became eligible for early repayment. At that time, German debt yields briefly rose in line with money market rates on expectations that the excess liquidity in the system would evaporate at a faster pace than initially thought.
Bund futures were last 2 ticks higher at 143.40, having hit a four-week high of 143.60 on Thursday.
Italian elections run the risk of producing a fragmented parliament which could hamper the future government's reform efforts and Bunds are seen holding firm at least until the results come out.
"(The) extension of (the) risk averse environment depends on key event risk, particularly (this) weekend's Italian elections," Credit Agricole said in a note.
The Ifo German business sentiment survey will be watched for further clues on the euro zone outlook after business activity data on Thursday showed the economic downturn in the region unexpectedly worsened in February.