Bonds News

EURO GOVT-Irish bond yields rise as euro zone ministers meet

* Irish yield creeps up on uncertainty over rescue

* Euro zone talks awaited, Irish bailout largely priced in

* Greece yields, CDS rise on Austrian aid comments

(Updates to settlement)

By Kirsten Donovan and Paul Day

LONDON, Nov 16 (Reuters) - Irish bond yields edged up on Tuesday as some investors grew nervous a meeting of finance ministers may not find a solution to Ireland’s debt crisis.

German debt ended the day lower, with recent periphery-driven safe-haven flows being unwound and as U.S. Treasury yields -- despite retracing some of the previous session’s gains -- were still up on the week.

As Eurogroup finance ministers met in Brussels, the Irish bond yield spread IE10YT=TWEB over 10-year Bunds pushed out to 585 basis points, 23 bps wider on the day.

Euro zone sources said ministers were unlikely to take a decision on Ireland on Tuesday. European Union finance ministers meet on Wednesday.

Flows in Irish debt remained extremely thin and in the context of recent large spread movements the widening did not represent a significant change of sentiment, a trader said.

“It feels as though an Irish deal is somewhat priced in,” said another trader. “We could see Bunds get a bit of a lift if nothing comes out.”

Portuguese yield spreads were barely changed on the day although Greek spreads and credit default swap prices jumped after Austria said Athens had not fulfilled commitments for its European Union-backed aid package [ID:nLDE6AF1UJ].

Analysts have suggested Portugal -- seen as the next weakest link -- and Ireland may ask for EU aid together to help remove uncertainty from financial markets.

“If Ireland and Portugal go together, the heat comes off generally. But if Ireland does and Portugal avoids it, there’s still a lot of uncertainty,” said John Davies, a fixed income strategist at WestLB.

But even that may not be enough to tempt buyers of peripheral bonds, because recent volatility will affect investors’ ability to hold the paper.

“The mark-to-market volatility in the very near term could easily be such that even if you’re right in the medium term you just aren’t able to stay in the game,” Davies said.

The Irish government has so far resisted pressure to turn to the EU for help with its financial problems, contending that only its banks may need help, but, despite last-minute nerves, market expectations of a deal are high [ID:nLDE6AE2AI].

“(Ireland) must feel a little put upon since the crisis has been brought on by German and other policymakers talking about a crisis (default) mechanism,” said Ben May at Capital Economics.

The cost of insuring Irish debt against default over five years rose 33 bps to 530 bps.

“The markets are doubtful that the costs of Ireland’s ailing banks can be met by the state, and the experience of Greece in the spring showed that a lack of decisiveness can be damaging,” said Markit analyst Gavan Nolan.


Take a Look on Ireland debt talks [ID:nLDE68T0MG]

Graphic on euro zone’s struggle with debt

IFR Comment on euro zone periphery [ID:nIFR5VQcKx] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The 10-year German bond yield DE10YT=TWEB was 2.614 percent, up 5.5 bps while the two-year Schatz yield DE2YT=TWEB was up 1.3 bps at 1.058 percent.

Spain sold almost 5 billion euros of 12- and 18-month paper hitting the Treasury’s target range, but at a higher price than a month ago, before the latest escalation in peripheral tension.

German Bund prices have also been dragged lower by a sell-off of U.S. debt due to worries over the future of the Federal Reserve’s $600 billion bond purchase programme.

“The market was very geared up for QE and now it’s happened the market seems to be somewhat disappointed. This is a technical move with a lot of long positions being unwound,” said RIA Capital Markets strategist Nick Stamenkovic in Edinburgh.

December Bund futures FGBLZ0 settled 73 ticks lower at 128.14, their lowest since early August.