* Iraq tensions keep oil prices around $114 a barrel
* Bund yields just above 2014 lows on safe haven buying
* Periphery yields edge up as Italy sells debt
(Updates prices, adds fresh quotes)
By Marius Zaharia
LONDON, June 25 German government bond yields
fell towards their lowest levels this year on Wednesday as
worries over violence in Iraq pushed investors towards assets
perceived as safe havens.
Fears that a further rise in oil prices on the back of
fighting in Iraq could pose a risk to the global growth outlook,
kept oil prices close to $114 per barrel.
"Geopolitical risk has re-entered investors' mind. The
events overnight had begun to trouble investors with respect to
global growth," Investec chief economist Philip Shaw said.
German 10-year Bund yields fell 3 basis points
to 1.29 percent, just above this year's low of 1.28 percent.
Bund futures were 35 ticks higher at 146.46, having
risen by almost two points in the past two weeks.
Concerns related to conflicts in Iraq and Ukraine, as well
as the European Central Bank's ultra-easy monetary policy in
response to stubbornly low inflation have led to an unexpected
fall in Bund yields this year.
Bund yields started 2014 at roughly 2 percent and polls of
bond investors predicted at the time they would rise further by
the end of the year as the global economy recovered and the
Federal Reserve moved to end its unprecedented stimulus
programme that had boosted financial assets worldwide.
"We have been surprised, as have many other investors, by
long-term core government bond yields continuously scoring new
lows," Pioneer Investments CIO Giordano Lombardo said.
"It seems to us that today there is a strong consensus in
the market that short- and long-term interest rates are going to
stay low for a long time, as a result of permanent low growth."
Lombardo said, however, that he believed economic conditions
were slowly normalising and this should in time lead to higher
Yields on the euro zone's lowest-rated bonds edged higher as
investors made room in their books for Italy's debt sales.
The Treasury sold 3.5 billion euros of inflation-linked debt
and zero-coupon bonds and plans to offer up to 8 billion of
bonds on Friday.
Italy has completed more than 60 percent of its 2014 funding
programme, while Spain has completed more than 70 percent of its
plan as the bloc's most indebted governments try to exploit
record low borrowing costs to build financing buffers.
Debt managers in Spain, Italy and Portugal said on Tuesday
they planned to push ahead with measures to raise the average
life of their debt and manage redemptions in a bid to quell
concerns about a large refinancing hump.
Italian and Spanish 10-year yields
were last 1-2 bps higher at 2.78 percent and 2.68
percent, respectively. Both have fallen sharply this week as
weak euro zone activity data rekindled speculation the ECB could
launch a programme of large-scale asset purchases - or
quantitative easing (QE).
The ECB cut its key interest rates last month and promised
more liquidity to banks via long-term loans called targeted
long-term refinancing operations or TLTROs. It has signalled it
would take a wait-and-see approach in the near term.
"The grand scepticism is that TLTROs are not going to work
so you'd think they'll do QE," one trader said. "They're not
going to do it this year, but the carry trade still rules."
(Editing by Louise Ireland)