* 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 Marius Zaharia and Ana Nicolaci da Costa
LONDON, Dec 3 Greek bonds rallied on Monday
after Athens announced better than expected terms for its
planned debt buy-back, boosting chances it will succeed and lead
to the release of fresh aid funds.
The International Monetary Fund has said it needed to see
the results of the buy-back operation before approving its part
of the new aid tranche to be released to Greece.
With uncertainty about IMF aid dropping, investors had extra
incentives to buy Italian and Spanish bonds, which have already
rallied in the past week after euro zone finance ministers
agreed in principle to lend Greece more cash.
"It looks like everything is going smoothly, the pricing
ensures a decent take-up ... it helps markets price out the
remaining risk of things not adding up and it keeps Greece on
track," Commerzbank rate strategist David Schnautz said.
The range set by Athens for the buy-back price varied from a
minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1
percent of the principal amount, depending on the bond
maturities of the 20 series of outstanding bonds.
These are higher than the Nov. 23 close - between 25.15 and
34.41 cents in the euro - which was what markets initially took
On Monday, Greek bond prices rose by 2-3.5
cents in price to 30.2-38.8 across maturities, yielding roughly
Analysts said the rally not only reflected the surprise that
the offered prices in the buy-back were higher than expected
last week, but also bets that any holdouts may eventually be
paid in full.
The buy-back does not contain any official coercion
mechanisms, such as collective auction clauses (CACs). If the
move is successful, the remaining stock of Greek debt in private
hands will be so small that any restructuring would be of little
use in making Athens' debt position more sustainable.
Nikolaos Panigirtzoglou, a JPMorgan strategist, estimates
hedge funds own about 15 billion euros of Greek bonds and only
about two thirds of them will participate in the buy-back.
"That's why bonds are rallying. It's not only that the price
was perhaps higher than most people thought last week but it's
also the fact that the Greek government ... is not really
pursuing the activation of CACs," Panigirtzoglou said.
"It means the remaining bondholders that are not going to
participate in the exchange are more likely to be paid at par in
Spanish 10-year yields were down 8 bps at 5.26
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 banks.
Ten-year Italian yields were 5 basis points
lower at 4.45 percent, some 305 basis points over their German
counterparts, with the spread having briefly dipped below 300
bps for the first time since March earlier in the day.
"Everyone is aware that this is a big number for many
people. This could be a chance to take some profits or at least
to take some chips off the table," Commerzbank's Schnautz said.
"The question is where to we go from here and how much
fantasy is left," he said, adding that the levels looked
Safe-haven Bund futures were 28 ticks lower at