* Uncertainty before Greek election favors German debt
* Underscores confidence in credit quality of German debt
* German sale attracts 1.4 bid-cover, above year’s average
By Ana Nicolaci da Costa and Sarah Marsh
LONDON/BERLIN, June 13 (Reuters) - Uncertainty before Greek elections prompted investors to pick up 10-year German bonds at a sale on Wednesday, easing niggling concerns about the country’s credit quality as the euro zone debt crisis drags on.
A sell-off in German debt over the past two sessions also boosted demand for 4.04 billion euros of 10-year paper by cheapening bond prices and pushing yields higher.
“The auction saw a decent overbidding which is encouraging,” Michael Leister, strategist at DZ Bank, said. “It’s reassuring that the credibility and the view on Germany’s credit quality remains intact.”
German bonds came under pressure over the past two days as markets absorbed long-dated supply from highly-rated issuers Austria, the Netherlands and the European Financial Stability Fund. The losses prompted some questions about Germany’s safe-haven appeal given expectations any efforts to resolve the crisis would take a toll on its finances.
Others say Bunds have sold off as investors have taken profit on recent huge gains.
But the results showed Bunds were still the favourite in the euro zone as investors seek to preserve their capital, analysts said.
The sale attracted 1.4 times the amount on offer, demonstrating the euro zone’s largest economy is still able to borrow in times of market stress and pay much less than other euro zone countries.
The bid-to-cover ratio was below 1.5 at the previous sale in May but above the average for similar auctions this year at 1.34.
The average yield at the sale was 1.52 percent, above those offered at the previous auction but below this year’s 1.764 percent average.
The auction comes only days before the Greeks go to the polls in a vote which will be decisive for Greece’s future in the euro and as investors fretted about Spain’s long-term ability to access markets.
“No one really wants to take big risk ahead of this event... which is positive for Bunds,” Leister added.
German Bund futures last traded at 141.47, down a point on the day, compared with 141.50 before the auction.
At a separate bond sale, Italy’s one-year borrowing costs shot up to a six-month high of 3.972 percent on concerns about the country’s ability to continue to sustain its debt mountain as contagion spreads and growth struggles..
It faces a harder task on Thursday when it offers three-year bonds and two longer-dated issues no longer sold on a regular basis, for a total of up to 4.50 billion euros.