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EURO GOVT-Bunds slide after U.S bank stress tests, Fed
March 14, 2012 / 9:38 AM / 6 years ago

EURO GOVT-Bunds slide after U.S bank stress tests, Fed

* German Bunds hit as Fed, stress tests fuel equities rally
    * German 10-year yields could rise to 2 pct in coming days
    * Italian yields stable before 6 bln eur of supply

    LONDON, March 14 (Reuters) - German Bund futures hit
their lowest level in two weeks on Wednesday after the U.S.
Federal Reserve sounded a less downbeat note on growth and most
U.S. banks passed their annual stress tests, denting demand for
safe-haven government bonds.	
    Bunds extended the previous day's losses after the Fed said
after a policy meeting that it expected "moderate" growth over
coming quarters along with a gradual decline in the unemployment
    German 10-year yields could test in coming days the 2
percent level that has formed the upper end of their trading
range so far this year, as improved prospects for the global
economy fuel a rally in riskier assets.  	
    "They (the Fed) were modestly upbeat on the economy ...Banks
passing the stress tests generally is helping risk-on and gave
the next push down in Bunds," a trader said.	
    The Fed said most of the largest U.S. banks passed their
annual stress test, in a report that underscored the recovery of
the financial sector.    	
    The June Bund future fell more than a full point to
137.18, its lowest since Feb. 27 while the German 10-year yield
was up nine basis points at 1.91 percent. Selling
in the contract accelerated after stop levels were triggered
around 137.40, according to traders.	
    Bunds looked vulnerable to further losses with European
equities hitting new 2012 highs and the risk of an imminent
unruly Greek default averted after the country's successful debt
restructure, Commerzbank strategists said, prompting them to
maintain tactical short positions on the Bund.	
    "This combination of risk appetite coming back on less
uncertainty with regards to the Greek rescue package and
slightly more positive macro tone are giving additional headwind
to Bunds," said Rainer Guntermann, a strategist at Commerzbank.	
    "We could well imagine that the trading range could test the
upper side at 2 percent or slightly above on 10-year Bund
    Peripheral euro zone government bonds held largely steady as
traders braced for up to 6 billion euros of supply from Italy
which aims to sell a new three-year BTP bond as well as a 2019
    The auctions are expected to meet with solid demand from
investors flush with cheap European Central Bank funds and drive
three-year borrowing costs below 3 percent, half what Italy had
to pay a few months ago.	
    Credit Agricole strategists said they saw good value in the
new Italian three-year issue, and recommend switching out of
Spain's Jan. 2015 bond which has not been tapped since last
    "There is a 25 bps pick-up from the Spanish to the Italian
issue, making this possibly the best value Spain-Italy switch at
this time. At anything above 10bps, the switch makes sense and
should be held medium term," they said in a note.	
    The three-year BTP yielded 2.887 percent in
the grey market while the Spanish Jan, 2015 
yielded 2.7 percent. 	
    Italian 10-year yields were unchanged on the
day at 4.898 percent with the Spanish equivalent 
up two bps at 5.18 percent.

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