November 9, 2012 / 8:46 AM / in 5 years

EURO GOVT-Greece and growth worries support safe haven Bunds

* Bunds to hold recent gains as Greece aid saga drags on

* Looming U.S. fiscal cliff to support Bunds in medium term

By William James

LONDON, Nov 9 (Reuters) - Low-risk German bonds rose on Friday with demand solid after sizeable gains this week spurred by worries over Greece’s debt problems and the prospect of growth-crushing spending cuts in the United States.

Greece will vote to approve the country’s 2013 budget on Sunday, the next big step towards unlocking access to urgently-needed international aid after Wednesday’s tight vote in favour of a 13.5 billion euro austerity package.

However, on Thursday the German finance minister said it may be too early to decide next week on granting Greece further aid, dashing the hopes of those who expected the aid to be approved at a meeting of euro zone finance ministers on Monday.

Bund futures rose 10 ticks on the day to 143.08, adding to gains of more than a point since last Friday’s close, although market participants cautioned that after such a good run, the rally may not extend much further.

“Bunds have had a good run this week and obviously the situation in Greece and Spain is still out there, but I get the feeling a lot of that is in the price now,” a trader said, adding that he was looking for a break to around 142.80.

Traders also highlighted the December contract’s Aug. 2 high of 143.35 as a resistance level which may curb rising prices.

Debt issued by Spain also came under modest pressure, with traders citing persistent uncertainty over when and if the country would seek a bailout to resolve its debt problems.

Spanish 10-year yields were 2 basis points higher at 5.89 percent.


The safety bid has been fuelled in part by the re-election of Barack Obama as U.S. president and the risk that politicians will be unable to negotiate a way around $600 billion in spending cuts and tax hikes which could extinguish growth in the world’s largest economy.

Market participants said the likelihood of protracted wrangling should maintain demand for less risky, “core” bonds as a shelter from the uncertainty.

“Looking at the next few weeks we would expect both Bunds and U.S. Treasuries to trade supported at about current levels,” said Rainer Guntermann, strategist at Commerzbank in Frankfurt.

“Obviously the fiscal cliff is the big issue and over here in Europe we have economic weakness coming through in the core countries.”

In recent days, both the European Commission and the European Central Bank have acknowledged a worsening outlook for the euro zone’s struggling economy -- supporting bonds and deterring investment in riskier assets such as stocks.

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