* Russia says it had ended military drills near Ukraine
* Israel and the Palestinians strike 72-hour truce
* Uncertainty remains high, top-rated assets to remain bid
(Updates prices, adds fresh analyst comments)
By Marius Zaharia
LONDON, Aug 11 German bond yields bounced off
record lows on Monday after Moscow said it had finished military
exercises near Ukraine while Israel and the Palestinians agreed
But market moves out of top-rated assets were modest as
uncertainty remained high and investors saw risks of further
flare-ups in the Middle East and Ukraine.
Bund futures fell 14 ticks to 149.34, with 10-year
German yields rising 1 basis point to 1.06
percent, having hit a record low of 1.024 percent on Friday.
Bunds, seen as among the safest assets in the world, have
gained especially from the conflict between the West and Russia
over Ukraine. Economic sanctions imposed by both sides are
expected to take their toll on the euro zone's economic
recovery, which is already fragile and uneven.
"There seems some easing in the military situation between
Russia and Ukraine, but still, with the sanctions that have been
adopted ... that will still have an impact on the (euro zone
economy," said Gianluca Ziglio, a strategist at Sunrise Brokers.
"What's extremely worrying too is the situation in Iraq with
Western countries like the United States becoming more and more
involved, and the situation in Israel and Palestine. These kinds
of uncertainties and geopolitical risks should allow Bunds to
remain well bid."
Moscow's Defence Ministry said it stopped drills in southern
Russia, easing fears that it could invade eastern Ukraine.
But talk of a ceasefire in Ukraine, a possibility raised by
a pro-Russian separatist leader on Saturday, evaporated as
government forces pushed to recapture Donetsk.
In the Middle East, Israel and the Palestinians agreed on
Sunday to a new 72-hour truce in Gaza.
In Iraq, U.S. air strikes against Islamic State militants
were seen by some analysts as aiding stability, curbing risks of
oil supply disruptions from OPEC's second-largest producer.
The conflicts in the Middle East and Ukraine have kept
traders edgy at the start of a month known for very low activity
due to the summer holidays in the northern hemisphere.
Last week's volumes in Bund futures were, at 3.5 million
lots, the largest since June and above a weekly average of just
below 3 million so far in 2014. Volumes in Italian BTP futures
were the highest since May at just below 360,000 lots.
Spanish and Italian 10-year yields
fell 3-4 basis points to 2.55 percent and 2.79
Italy's Senate passed on Friday a first reading of a hotly
contested constitutional reform bill backed by Prime Minister
The bill, aimed at making the upper house an unelected body
and drastically reducing its powers, requires many more months
and perhaps a popular referendum in order to become law. But
eventually, Renzi hopes it will end the kind of parliamentary
stalemate left after a deadlocked election last year.
The slow speed of Italy's reforms came under closer scrutiny
in financial markets last week after data showed the euro zone's
third-largest economy slipping back into recession.
Renzi told the Financial Times that Italy would post a
budget deficit of just below the European Union's limit of 3
percent of gross domestic product without additional fiscal
tightening. April's official forecast was 2.6 percent.
"Structural measures promised by Renzi are still to be seen,
and with last week's poor GDP numbers the time is running out,"
said Suvi Kosonen, an analyst at Nordea.
(Additional reporting by Emelia Sithole-Matarise; Editing by
Andrew Heavens/Ruth Pitchford)