German government bonds opened lower on Friday, with some investors cutting back their exposure to relatively safer low-yielding assets on bets that Greece may finally secure a vital second bailout at the start of next week.
Euro zone officials said on Thursday they were putting the finishing touches to Greece’s bailout for approval on Monday, which means Athens can finally proceed with a bond swap with private creditors aiming to cut its debts by 100 billion euros.
The bailout money will be disbursed only after the debt restructuring takes place. Some jitters remain due to the tight schedule, with Greece needing to secure the funds before March 20, when it needs to pay back debt worth 14.5 billion euros.
At 0706 GMT, Bund futures were 28 ticks lower on the day at 138.75.
“It feels like things are a lot more positive than they were yesterday morning, but given the history of this thing we’re waiting for a spanner to go in the works,» one trader said.
“The market is expecting to announce a deal on Monday with the window open for the PSI (private sector involvement). They can announce the details of it but then we need to see things turn up, it’s not completely done yet.”
The trader added it was unlikely for Bunds to break below this year’s 137-140 range in the near term.
Even if Greece avoids a disorderly default in March, markets are unlikely to jump on riskier assets with too much enthusiasm due to concerns over the implementation of the bailout terms and the solvency of other euro zone countries such as Portugal.
Bonds issued by the euro zone’s lower rated states were expected to rise, resuming this year’s rally on the back of a massive European Central Bank liquidity injection into the banking system in late December. The ECB will conduct a second such operation at the end of the month.