* Bunds up after Japan quake, Mideast unrest
* Portugal yields rise ahead of summit
* Italian 5 bln bond auction seen going smoothly
By Kirsten Donovan
LONDON, March 11 German Bunds rose on Friday
after a massive earthquake in Japan and as unrest in Saudi
Arabia deepened Middle East and African concerns, while little
relief is seen for the euro zone's struggling borrowers from a
Yields on Greek, Portuguese and Spanish bonds are set to
remain elevated with the meeting expected only to back a
watered-down version of a German-French plan to boost
competitiveness and fail to agree to widen the scope of the
rescue fund. [ID:nLDE7290IP]
With the market braced for disappointment, analysts said
comments from officials that progress was being made would not
be enough to ease peripheral stress ahead of an European Union
summit later this month.
"Investors are eager for details and numbers," said
UniCredit MIB strategist Kornelius Purps.
"We will get comments that they are making progress today
but investors are concerned about how countries are going to
finance themselves in the next couple of years."
June Bund futures FGBLc1 were 23 ticks higher at 122.26.
The contract was testing the gap from the March 2 low of
122.25, with the next target to the upside the Feb. 24 high of
"No one is going to want to be short going into the weekend
in this environment," said a trader.
"And the periphery will stay under pressure. It's not a good
environment for risk assets at all and the European Central Bank
doesn't seem to be willing to step in."
Two-year bond yields DE2YT=TWEB were 3 basis points lower
at 1.668 percent with 10-year yields DE10YT=TWEB down the same
amount at 3.218 percent but around 20 bps lower than highs hit
after last week's ECB meeting.
"Today there are temporary factors that are preventing
yields from rising but in the medium-term we will go back to
those post-ECB levels and even beyond," Purps said.
Portuguese bonds underperformed, with the 10-year spead over
Bunds widening close to its highest since November at 452 bps.
The country's bond yields have soared to euro lifetime highs
this week, reinforcing the view that the country will have to
ask for an EU bailout, something the Austrian Finance Minister
has urged Lisbon to decide on quickly [ID:nLDE72A0CJ].
There is also a chance it could see its ratings downgraded
in the next week. Moody's -- which cut Greece and Spain this
week -- also has Portugal on review for downgrade, a decision it
said in December it would make by March 21.
Portugal's finance minister is due to make an announcement
on the budget imminently. [nLDE7292R1]
ITALY TO SELL BONDS
Italy will sell up to 5 billion euros of 2015 IT465627=
and 2026 IT464473= bonds [ID:nRME8EE7HD].
"Italy has been coming to the market without any particular
worries, and we expect no different," said ING rate strategist
Commerzbank strategist Marcel Bross meanwhile, recommends
switching Spanish government bonds into Italian BTPs with
Spanish paper at its most expensive versus Italian paper since
early last year after Spanish government bonds outperformed
The 10-year spread between the two has narrowed around 40
bps to just over 50 bps since then, according to Tradeweb data,
but the bank says this may be overdone, leading to a re-widening
in coming weeks especially with the potential for disappointment
from the upcoming EU meetings.
European shares fell as a huge 8.9 magnitude earthquake hit
northeast Japan [ID:nL3E7EB0MF] and unrest in the Middle East
intensified [ID:nLDE7292QY] although oil prices eased after a
quiet start to a "day of rage" in Saudi Arabia [ID:nN11204294].