(Updates prices, adds more comments)
By Marius Zaharia
LONDON, July 18 German Bund yields fell to near
record lows on Friday as investors bought assets perceived as
safe havens after the shooting down of a passenger plane over
eastern Ukraine, heightening tensions between Russia and the
Israel's stepping up early on Friday of its ground offensive
in Gaza also fed a rise in risk aversion among investors.
German Bund yields fell 1 basis point (bps) to
1.15 percent, having fallen as low as 1.137 percent overnight.
They were within a whisker of their record low of 1.126 percent,
hit in July 2012 at the height of the euro zone debt crisis.
"These are tragic events but we've seen in the past that
geopolitical factors can drive markets one day but they don't
have a lasting effect," KBC strategist Mathias van der Jeugt
The limited moves were a sign investors were waiting to see
what happens next before deciding whether to buy more safe haven
assets, he said.
Bund futures rose 16 ticks to 148.36, having hit an
all-time high of 148.48 overnight.
World leaders demanded an international investigation into
the plane crash, which killed all 298 people on board, with the
United States demanding a ceasefire between Kiev and pro-Russian
separatists to allow the inquiry to take place.
The disaster might intensify international pressure to
resolve the crisis in Ukraine, which has killed hundreds since
public protests toppled the Moscow-backed president in Kiev in
February and Russia annexed the Crimea a month later.
Western leaders have already tightened economic sanctions on
Moscow for what they say is its failure to rein in the violence.
Some investors said markets were relatively calm in the
aftermath of the Ukraine and Gaza events because they expected
central banks to ease their monetary policy further if there was
any risk to global growth.
"There's no question that markets have been desensitised ...
from geopolitical evens by the perception that central banks
will be supplying liquidity in an open-ended way," Smith &
Williamson director for fixed income, Robin Marshall, said.
RELENTLESS YIELD HUNT
Yields on lower-rated euro zone bonds were steady to a touch
higher, reversing most of their earlier rise - more evidence of
how relentless the hunt for yield is in an environment of record
low European Central Bank (ECB) interest rates.
Portuguese 10-year yields were last 2 bps
higher at 3.73 percent, having traded as high as 3.78 percent.
Spanish yields were down 1 bps at 2.62 percent,
off the day's highs at 2.68 percent.
Earlier this week, a rise in Portuguese yields caused by
worries over the financial health of firms of the Espirito Santo
banking family was met with renewed demand from investors hungry
for high-yielding assets.
"We remain positive on the periphery," London and Capital
head of fixed income, Sanjay Joshi, said.
He said the latest events in Ukraine and Gaza have not
prompted him to shift asset allocations, despite the fact that
they could increase the risk of further sanctions on Russia,
with potential implications for global growth.
"Whatever the ECB does to support the economy will be far
more favourable to peripheral markets than core markets," he
(Editing by Louise Ireland)