* Pricing on Greece debt buy-back higher than expected
* Details boost sentiment towards periphery
* Bunds reverse gains, seen sensitive to U.S. budget talks
* Limited reaction to Spain's formal request for EU bank aid
By Ana Nicolaci da Costa
LONDON, Dec 3 Greek government bond prices
rallied on Monday after details were announced of its debt
buy-back - a central part of a deal to release aid funds to the
Yields on other lower-rated debt also fell and German Bund
futures reversed earlier gains, as sentiment towards riskier
assets turned more favourable.
Greece set a smaller discount than expected in pricing buy
backs of each of its 20 series of outstanding bonds. It set a
spread of two percentage points - from a minimum of 30.2 to 38.1
percent and a maximum of 32.2 to 40.1 percent depending on the
"It indicates they really want the swap to succeed," Ricardo
Barbieri, strategist at Mizuho said, referring to the pricing.
"Some investors might be tempted to participate in the swap
because of the ability to simplify their position, should they
wish to maintain exposure to Greece, otherwise (it's) an
opportunity to exit completely their positions at a level that
is better than Friday's close."
Greek bond prices rose across the strip and
ten-year Greek bonds yields fell 149 basis points
to 14.68 percent.
Spanish 10-year yields were down 14 basis
points at 5.20 percent and showed little reaction to Spain's
formal request for the disbursement of 39.5 billion euros ($51.4
billion) of European funds to recapitalise its crippled banking
Ten-year Italian borrowing costs shed 10 basis
points to 4.39 percent, with the premium it offers over German
counterparts falling below 300 basis points for the first time
"(The Greek details) are better than expected. Therefore,
periphery now getting a bid... and that's weighing on Bunds,"
one trader said.
German Bunds reversed gains to stand down 37 ticks
on the day at 142.42 after the Greek news. They then came off
the day's low after news of Spain's formal bank aid request.
The Greek bond buy-back is key to the efforts of its foreign
lenders to make the country's debt burden more manageable, and
its success would pave the way for the country for long-delayed
funding to avoid bankruptcy.
But analysts wanted to reserve judgement on its long-term
impact on the market until after they see the final demand,
while many did not think it was a game-changer for Greece.
Investors must declare their interest by Dec. 7 and the
expected settlement date is Dec. 17.
The pricing was "attractive enough" for those who wanted to
get rid of their lingering positions in Greek sovereign debt,
Athanasios Ladopoulos, partner and chief investment officer at
Swi ss Investment Managers, a hedge fund, said.
"I think it will be taken," Ladopoulos said. "Some people
will find it the opportunity to take the ticket for the exit."
But he also said it was more "kicking the can down the road."
Ben May, European economist at Capital Economics, said if
the debt buy-back takes place successfully it would be a
positive for Greece but w o uld not "mean that Greece has turned a
"The bigger issue is that if we look at the long-run
debt-to-GDP forecasts, that will only fall in line with what the
Troika (of lenders) are projecting if the economic assumptions
on which they are based prove to be correct. What we do know, in
the past, is that the Troika's forecasts have tended to be very
optimistic," referring the International Monetary Fund, the
European Central Bank and the European Commission.
German Bunds were expected to remain sensitive to progress
in U.S. budget talks, analysts said.
Treasury Secretary Timothy Geithner said on Sunday that he
"can't promise" that the United States won't go over the "fiscal
cliff" of tax increases and spending cuts that will be
automatically triggered in early 2013, insisting it is up to
Without a deal, economists fear the U.S. economy could fall
back into recession.
Investors will get the latest insight into the health of the
world's largest economy through manufacturing data later in the
day and jobs numbers on Friday.
Data on Friday are forecast to show employment growth slowed
to 100,000 jobs last month from 171,000 in October, according to
a Reuters poll of economists. U.S. manufacturing data this week
is also likely to suggest a fourth-quarter slowdown is at hand.