* Greek deal brings relief to riskier assets, Bunds fall
* Bunds sell-off seen short-lived as deal largely priced in
* Spanish aid request doubts temper peripheral debt demand
By Emelia Sithole-Matarise
LONDON, Nov 27 (Reuters) - German government bond prices fell on Tuesday after Greece’s international lenders agreed a package of measures to cut the country’s debt, paving the way for the release of more aid.
The accord reached by the lenders in their third meeting in as many weeks, will cut Greek debt by 40 billion euros to reduce it to 124 percent of gross domestic product by 2020.
Eurogroup Chairman Jean-Claude Juncker said euro zone ministers would formally approve the release of aid to Greece, removing uncertainty over whether Athens could avoid near-term bankruptcy.
The relief lifted riskier assets such as equities and kept 10-year Greek yields subdued near their lowest level since the country’s debt restructuring in March, while safe-haven bonds retreated though the market moves were seen limited as the deal was largely priced in.
“Bunds are falling simply (because) the market is relieved we have a deal now and the tail risk of a Greek accident has been taken out,” said Michael Leister, a senior rate strategist at Commerzbank.
“It’s not the green light for a sustained rally for risk assets across the board. As we’ve seen before, once the market starts scrutinising some of the details some doubts may well arise.”
The German Bund future was last 46 ticks down at 141.99 with cash 10-year yields up 4 basis points at 1.45 percent.
The Bund yield has risen off 2-1/2-month lows hit about two weeks ago as the market anticipated that Greece’s lenders would eventually overcome some of their differences and agree to give Greece much needed aid to avert near-term bankruptcy.
The yields were unlikely to break out of the past month’s tight 35 basis point range as the deal was seen as another short-term salve for Greece’s debt problems, strategists and traders said.
Questions still remained about the funding of a potential Greek bond buyback which has to be effected before the International Monetary Fund can release its share of the aid tranche, strategists said.
“Meanwhile, the ongoing potential for a withholding of future aid disbursements should Greece fail to meet its reform targets means the country is likely to remain an intermittent source of volatility,” Rabobank strategist Richard McGuire said in a note.
Greek bond prices were marked higher across the strip , with 10-year bond yields down 10 bps at 16.4 percent while Portuguese equivalents were down 25 bps at 7/91 percent.
Among other peripheral bonds, Spanish and Italian 10-year yields were largely steady, with some traders saying uncertainty over when Spain would request external aid to trigger European Central Bank support tempered demand for the debt.
“People are looking at Spain which looks like it’s not going to make an aid request until next year so we are likely to remain range-bound.”