* EU finance ministers seen agreeing to Greek aid tranche
* French bonds under pressure after downgrade
* Moody’s strips France of triple-A rating, threatens more
By Emelia Sithole-Matarise
LONDON, Nov 20 (Reuters) - German bond prices fell on Tuesday as growing speculation that euro zone finance ministers will agree to release aid to debt-laden Greece reduced demand for safe-haven assets.
Bunds rose earlier after France lost a second triple-A credit rating but, with the Moody’s downgrade of the euro zone’s second biggest economy widely expected, the move soon reversed as traders refocused on the Greek aid talks.
The ministers, meeting in Brussels, are expected to agree to release 44 billion euros of emergency funding for Greece, removing for now a major source of investor anxiety that helped drive safe-haven Bund futures to near two-month highs last week.
“It doesn’t look like they (the ministers) are going to have an immediate long-term solution for Greece but there will be some deal to kick the can...(for) a quarter or two. So some of the risk premia is being priced out of core markets,” a trader said.
Bund futures shed 62 ticks to settle at 142.38, having broken below last week’s low of 142.83, while German 10-year yields rose 6 basis points to 1.42 percent .
Cash 10-year yields were likely to rise to 1.50 percent in coming days if expectations on Greek aid are met, some traders and strategists said.
“With the 10-year around 1.40 percent, we see yields backing up to around 1.50 percent but we still see the market well supported into year-end and 1.50 percent should present a buying opportunity,” David Schnautz, a strategist at Commerzbank, said.
While the ministers were expected to give tentative approval for the next tranche of loans for Greece, a deal on longer-term debt reduction may require further talks.
Euro zone officials have clashed with the International Monetary Fund over how to ensure Greece’s finances are sustainable and whether to push back the target date for its debt to fall to 120 percent of output to 2022 from 2020.
“The key thing is how to make the debt mountain of Greece sustainable, if they really agree on softer targets. That remains to be seen but there won’t be a near-term accident for Greece,” Schnautz said.
Greek bond prices were marked higher across the strip . Portuguese bonds also rallied, albeit in thin volumes, on the prospect of further aid for Greece and after Lisbon’s international lenders said on Monday the country had passed the sixth quarterly review under its bailout programme .
Portuguese 10-year yields fell as much as 33 bps on the day 8.21 percent, their lowest since late October.
Among higher-rated euro zone debt, French bond yields rose after Moody’s cut the country’s rating to Aa1, citing an uncertain fiscal outlook and a deteriorating economy, and warned fresh downgrades could follow.
The change brought the Moody’s rating into line with that of Standard & Poor’s, which cut France to AA+ in January. Fitch Ratings still rates France triple-A.
French government bond futures shed 81 ticks to 135.70 and 10-year cash yields 7 basis points higher at 2.15 percent.
One trader saw limited lasting impact. “We don’t believe the Asian central banks that have been a big driver of the convergence (with German bonds) will let up on their buying.”
However, analysts and traders said French debt may come under further pressure in the months ahead. Moody’s said separately that it would downgrade France again if the Socialist government fails to implement announced reforms.
Five-year credit default swaps on France’s debt were 2 bps higher at 91 bps, according to monitor Markit — up around 30 bps since late November.