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EURO GOVT-Bunds steady as core bond markets stabilise
January 8, 2013 / 9:21 AM / 5 years ago

EURO GOVT-Bunds steady as core bond markets stabilise

* German bonds stabilise as heavy selling pressure eases

* Doubt over U.S fiscal problems injects note of caution

* Busy supply schedule sees Netherlands, Austria tap market

By William James

LONDON, Jan 8 (Reuters) - German government bond prices stood unchanged on Tuesday as investors sought to draw a line under last week’s steep selloff though technical charts signalled the fall may not be finished yet.

Benchmark German Bund futures dropped by three points last week after a late deal by U.S. policymakers to avert a damaging fiscal contraction pushed investors to buy riskier assets.

“We’re seeing a bit of stability returning to the Bund market at the moment,” said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.

“Investors are a bit nervous ahead of the upcoming U.S. earning season and we’ve still got the debt limit discussions to come in the U.S. as well as Italian elections next month.”

The U.S. budget deal struck last week was seen as only the first step to resolving the political deadlock over fiscal policy, with some in the market preparing for a protracted debate on raising the country’s borrowing ceiling.

After initially opening higher, Bund future prices were last unchanged at 143.06, with some traders betting that a small rebound seen on Monday had further to run.

“Last week’s selloff looks a bit overdone and we’re starting to retrace that now. For choice I’d look to play this market from the long side,” a trader said, referring to bets that Bunds would rise.

Despite the stabilisation in prices, technical charts still showed Bunds were vulnerable to further selloffs.

“The risk of renewed declines is not over yet and therefore potential for another rise in yields prevails,” said analysts at Helaba Landesbank Hessen-Thueringen, citing a breach of the 100- and 200-day moving averages as well as a push through long-term downtrends.

SUPPLY HIGHLIGHTS

The session features a busy supply schedule with top-rated sovereigns Austria the Netherlands issuing bonds while bailed-out Ireland plans a further step in its return to debt issuance with a five-year bond syndication.

Irish five-year yields rose 6 basis points on the day to 3.41 percent. A market source told IFR, a Thomson Reuters service, Dublin was taking indications of interest in the bond in the mid-swaps plus 260 basis points area.

Spain, at the frontline of the debt crisis and expected by many to turn to official lenders for a bailout in 2013, will detail how much money it needs to raise this year at around 1000 GMT.

“One of the key issues going forward is whether the amount of supply that Spain faces this year will eventually force them into the hands of the ECB. I think it probably will but it doesn’t look as though there’s any rush,” Stamenkovic said.

The Netherlands began its 2013 fundraising by selling 3.2 billion euros of three-year bonds at an average yield of 0.318 percent.

It was the first euro zone bond issued with a collective action clause -- a measure designed to make debt restructurings easier to manage. Since the beginning of this year, all new sovereign bond issues from the region must contain CACs.

Barclays Capital analysts said the inclusion of the clause was not expected to make a difference at Tuesday’s auction, highlighting pre-issue prices that showed the bond traded only slightly cheaper compared to other surrounding issues.

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