January 16, 2013 / 8:56 AM / in 5 years

EURO GOVT-Bunds steady as focus falls on 10-year auction

* German Bunds firm awaiting 10-year bond auction
    * Recent rise in yields should encourage auction bids
    * Periphery rally stalled by weight of new supply

    By William James
    LONDON, Jan 16 (Reuters) - Bund futures held firm at
Wednesday's open with investors looking to a 10-year bond sale
by Germany at which demand was expected to be driven by a recent
rise in yields.
    German bond prices are over one point higher on the week as
buyers have re-emerged after a steep selloff and the expectation
of bitter wrangling over raising the U.S. national debt limit
boosted the attraction of low-risk assets.
    In the build-up to the launch of Germany's new 2023 bond,
the Bund future was 7 ticks higher at 143.36, reversing
a small fall at the open as Europe's stock markets 
slipped in early trade.
    "Investors are waiting for the German auction this morning,"
said Nick Stamenkovic, strategist at RIA Capital markets. "We
had a sharp move down in equities overnight and in Asia but it
hasn't really given much of a lift to the Bund yet."
    Nevertheless, bidders were expected to be drawn to the Bund
sale by yields that look attractive relative to recent levels
after rising when safe havens suffered during a risk-hungry
start to the year. Yields rose as much as 23 basis points in
early January before retracing slightly as buyers re-emerged.
   "The yield pickup and outright yield level closer to 1.60
percent again should attract real money accounts," Commerzbank
strategists said in a note.
    The new issue traded at around 1.58 percent
in the grey market, where bonds are bought and sold before they
are issued. That compared favourably to the current 10-year
benchmark which last yielded 1.50 percent.
    The technical outlook for German debt was less positive with
analysts not convinced that the rise seen this week marked a new
upward trend for Bund futures.
    "As impressive as this move has been, there is still no
evidence of any bullish reversal patterns forming," said Richard
Adcock, technical analyst at UBS.
    "While the rally can be extended further over the short
term, our main resistance focus is the 38 percent retracement of
the late December/early January sell-off at 143.49 and we will
watch how this is defended over the coming days."
    Yields inched higher among the euro zone's lower-rated
sovereigns, where a busy start to 2013 in terms of new debt
issuance has stalled a new year rally.
    Spain is due to issue up to 4.5 billion euros of bonds on
Thursday, in what will be a closely watched sale as investors
try to gauge whether the country can make it through the year
without turning to international lenders for help.
    Spanish 10-year bond yields were 4 basis points higher at
5.06 percent while the Italian equivalent was up 5
basis points at 4.26 percent.
    "It's not really surprising that markets are looking for a
bit of a concession ahead of the Spanish auction tomorrow and
obviously we've had the auction in Italy which led to a bit of
caution," Stamenkovic said.
    Italy continued its flying start to fundraising in 2013 with
a strongly subscribed 15-year bond syndication on Tuesday that
took its overall amount raised close to 10 percent of the year's
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