Bunds fall with Greek deal seemingly near

German government bonds fell at Monday’s open on the belief that Europe will sign off on a second Greek bailout package, but losses are likely to be limited with nothing done to tackle Greece’s underlying economic problems.

An easing of monetary policy by China late on Sunday also added to appetite for riskier assets and weighed on safe-haven government debt.

Euro zone finance ministers are expected to approve the aid for Greece at a meeting later on Monday enabling the country to restructure its debt and avoid a disorderly default, the chance of which has rattled financial markets in recent weeks.

But markets are still concerned about Greece’s ability to implement necessary reforms, despite politicians pledging to do so.

“There are a lot of conditions for Greece to meet and that means a lot of chances to fail,» a trader said.

“So we’re looking at short-term losses for Bunds but it still feels range-bound. Positioning is pretty square in the periphery and it doesn’t seem as though people are particularly long of Bunds.”

March Bund futures were 31 ticks lower at 138.11 after briefly testing the 138.00 level, with 10-year yields 2 basis points higher at 1.949 percent.

Italian BTP futures were 24 ticks higher at 102.97 in thin trade.

“Bunds may consolidate a bit further with the remaining implementation risks over the coming weeks limiting the upside for yields,» said Commerzbank rate strategist Rainer Guntermann. «Periphery markets should see further relief, supported by the lack of supply this week.”

Trading is expected to be subdued with US markets closed for a holiday, potentially exaggerating any price moves. [Reuters]