LONDON Feb 7 Bund futures were steady on
Thursday and investors stuck to the sidelines ahead of a
challenging Spanish bond sale and a potentially testing European
Central Bank meeting.
Political uncertainty after Prime Minister Mariano Rajoy
faced calls to resign over a corruption scandal this week will
likely dampen investor appetite at the Spanish auction, as the
country's economic picture remains bleak.
German Bund futures were 1 tick lower at 142.53.
"It needs a bit of a concession this morning, and I am not
convinced it trades well afterwards," one trader said, referring
to Spanish paper.
Hours later, the ECB is widely expected to keep interest
rates unchanged at 0.75 percent but its President Mario Draghi
faces a grilling over the bank's sensitivity to the euro's sharp
rise and his connection to an Italian banking scandal which has
also unsettled Italian debt markets.
In particular, investors will be watching Draghi's
assessment of the initial repayments of long-term loans which
are seen as a sign of a healing banking sector but have also led
to a spike in bank-to-banking lending costs which many view as
de facto monetary tightening.
"Maybe the danger is we go into the meeting and people are
hopeful that he takes a more dovish slant than he did in January
and maybe there is some room for disappointment - I suppose
that's the danger going in," the trader added.