German government bonds edged up on Friday, holding near two-month highs, with anxiety over Greece’s debt sustainability and the U.S. «fiscal cliff» pushing investors towards the safety of low-risk assets.
Greece has taken centre stage in the three-year-old eurozone crisis as its international lenders squabble over its longer-term debt sustainability, delaying a 31 billion euro aid payment necessary to keep the country afloat.
Euro zonefinance ministers meet again next Tuesday, with IMF Managing Director Christine Lagarde saying a deal should be forged.
The IMF wants a solution that would bring Greek debt down to 120 percent of economic output by 2020 but a senior eurozone source told Reuters this week that finance ministers would only attempt to close the financing gap to 2014.
“On Tuesday night we’ll know how they’re going to kick the can down the road and there will probably be a sense of relief some kind of agreement has been reached and that will probably help Spanish bonds as well,» said Gary Jenkins, director of Swordfish Research.
“In the meantime, the underlying data is probably not going to improve so there’s going to be continued pressure on these sovereigns.”
December Bund futures were 11 ticks higher at 143.24, holding close to Tuesday’s two-month high of 143.48.
Bunds have rallied since mid-October when it became apparent that Spain was in no hurry to request financial assistance — something that would allow the European Central Bank to buy its bonds — as investors booked profits on higher-yielding peripheral bonds and moved back into safe-haven assets.
But the stagnation in the market is evident in closing levels since last Friday, with three settlements coming at 143.14 and the other two at 143.13 and 143.17.
“Greece, Spain, the U.S., it’s the same themes but no developments, people stay risk averse and the market moves sideways,» a trader said.
Ten-year yields were down a basis point at 1.33 percent.
Spanish bond yields have risen around 60 basis points since mid-October and were last 3 bps lower at 5.89 percent.
Greece will repay a maturing 5 billion euro T-bill on Friday, having raised funds for the redemption earlier this week while it waits for the European Union and International Monetary Fund to agree to release the delayed emergency loans.
The EU’s top economic official sought on Thursday to rule out any write-off of Greece’s debt to governments. The IMF argues a write-down is necessary to put the country on a sustainable financial path.
In the United States, budget talks start later on Friday, with fears of a protracted stand-off also whetting investors’ appetite for lower-risk assets.
Failure to reach a compromise on $600 billion of spending cuts and tax hikes that kick in in January could pitch the United States back into recession