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EURO GOVT-Euro zone debt stabilises after sell-off, Greece dumped
June 21, 2013 / 11:46 AM / in 4 years

EURO GOVT-Euro zone debt stabilises after sell-off, Greece dumped

* Spanish, Italian bonds rebound after Fed-led sell-off
    * Greek yields surge as political turmoil deepens
    * Bunds fall but range-bound, analysts divided on direction
    * Analysts flag risks of continued high volatility

    By Ana Nicolaci da Costa
    LONDON, June 21 (Reuters) - Spanish and Italian government
bonds rebounded on Friday after a sharp sell-off triggered by
the prospect of reduced U.S. monetary stimulus, and German Bunds
fell but kept range-bound.
    Greek government bonds tumbled however, with borrowing costs
on debt issued by the bailed-out country surging to their
highest since April after political turmoil dragged the
sovereign back into the spotlight. 
    Fed Chairman Ben Bernanke said on Wednesday the U.S. economy
was expanding strongly enough for the central bank to begin
slowing the pace of its bond-buying later this year, triggering
a broad sell-off across financial markets. 
    After this week's sharp moves, analysts expected euro zone
bonds to stabilise somewhat into the weekend but said trade was
expected to remain choppy over the near-term.
    "There have been huge moves, there have been huge
repositionings, so maybe before the weekend, volatility can come
down a bit," said Piet Lammens, strategist at KBC.
    Ten-year Spanish government bond yields fell
9.2 basis points to 4.79 percent, after rising more than 30
basis points in the previous session. Italian yields
 fell 7 basis points to 4.50 percent.
    German Bund futures fell 22 ticks to 141.91, having
posted their biggest daily fall since March in the previous
session. Ten-year yields were 1.8 basis points
higher at 1.68 percent, with analysts flagging resistance around
1.70-1.73 percent.
    Investors were divided on the outlook for German yields over
the medium-term. While some saw them rising further along with
U.S. Treasuries, others said the upside was limited by the euro
zone's continuing economic woes.
    Also, if market volatility increases to a level where it
harms the global economic recovery and leads to another flare-up
in the euro zone debt crisis, investors may bet on further ECB
action and seek shelter in safe-haven Bunds, driving German
yields lower.
    Analysts said illiquid bond markets such as those in
Portugal and Greece were particularly vulnerable to further
    Ten-year Portuguese yields were up 1.3 bps at
6.45 percent on Friday, while equivalent Greek borrowing costs
 surged 91 basis points to 11.62 percent. 
    Ten-year Greek yields were on course for their biggest daily
gain since July 2012.
    The smallest party in Greece's ruling coalition was set to
pull out of the government on Friday after a row over the abrupt
closure of the state broadcaster, leaving Prime Minister Antonis
Samaras with a sharply reduced majority in parliament. 
    "Greece is a time-bomb waiting to explode anytime," 
Gianluca Ziglio, head of fixed income research at Sunrise
Brokers said.

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