* Cypriot savings levy seen as risky precedent
* Analysts see risk of fresh contagion
* Bunds rally, low-rated euro zone bond yields jump
By Marius Zaharia
LONDON, March 18 Italian and Spanish yields
jumped on Monday while German yields hit 2013 lows, with
investors viewing the euro zone's push for a levy on Cypriot
bank savings in exchange for a bailout as a dangerous precedent.
Analysts said the Cyprus deal risked sparking a new episode
of contagion in the region and some expect safe-haven Bund
futures to test levels close to their all-time highs.
In a shift from previous rescue packages, euro zone finance
ministers want Cyprus to tap savers' cash in order for the
country to receive 10 billion euros of financial aid.
The move sparked fears of a run on some banks in the region
and worries that similar extraordinary measures might be taken
if other indebted euro zone sovereigns needed funding help.
"The crisis is back," one trader said.
The Cypriot bailout deal pushed yields among highly indebted
euro zone countries higher, including those on bonds issued by
Spain and Italy, viewed as the sovereigns most at risk of
The cost of protecting debt issued by sovereigns on the euro
zone's periphery also rose.
Italian 10-year yields at one point rose 11
basis points to 4.72 percent and were last at 4.68 percent.
Equivalent Spanish yields rose 15 bps higher to
5.08 percent and were last at 5.06 percent.
Italian 10-year yields were last at 4.68 percent and Spain's
at 5.06 percent.
"What they've done is a fundamental change in terms of how
deposits are viewed in terms of safety. It's a clear danger of
contagion spreading to Spain and Italy, etc," said Lyn
Graham-Taylor, rate strategist at Rabobank.
"If you're a Spanish depositor would you keep your savings
in Spain or move them to Germany?"
Bund futures were last 64 ticks higher on the day
at 144.03, while cash 10-year German yields fell
as much as 8 basis points to 1.37 percent, their lowest this
year. Two-year German yields hit their lowest since
Jan. 2 at 0.001 percent.
UBS technical strategist Richard Adcock saw Bund futures
rising to at least 146.15. The contract hit a high of 146.89
last June during the Greek elections, when fears of a euro zone
break-up reached a peak.
Some analysts said the rise in peripheral yields was an
opportunity to buy. ING rate strategist Alessandro Giansanti
said the spread between Italian and German 10-year yields could
widen to 370 bps in the near-term from 330 bps currently, but
that would be a good level to buy Italian bonds again.
"The impact may be more or less short-lived. Cyprus is an
isolated event, I don't see haircuts in deposits in bigger
countries, " Giansanti said, adding that the European Central
Bank's so far untested bond-buying programme should continue to
cap peripheral yields.
Cyprus's fractious 56-member parliament will vote on the
plan later on Monday. Approval is far from a given: no party
has an absolute majority and three parties say outright they
will not back the tax. A vote initially planned for Sunday was
rescheduled to give more time to build a consensus.
The uncertainty was felt in the illiquid Cypriot bond
markets. The June 2013 yield more than doubled to
almost 70 percent, while the yield on a February 2020
rose by more than a point on the day to 10.4