LONDON, Aug 24 (Reuters) – Bund futures tumbled on Wednesday as investors bought up riskier assets on hopes that the U.S. central bank will unveil fresh stimulus measures, and stronger economic data added momentum — though the trend was not seen as sustainable.

Among lower-rated euro zone bonds, Greek two-year yields soared by over 400 basis points as wrangling over collateral in exchange for bailout funding underlined the political problems dogging attempts to beat the region’s debt crisis.

Safe-haven Bund futures FGBLc1 settled 74 ticks lower at 134.54, extending the decline from record highs set last week, but remaining at historically elevated levels.

Traders said the losses were led by a revival in European equity markets where investors were bullish about the chances of Friday’s central bank conference bringing fresh quantitative easing from U.S. Federal Reserve Chairman Ben Bernanke.

“People in equities are still looking for Bernanke to come up with something… so we’re seeing people taking back some of their shorts in equities and consequently longs in higher-grade fixed income are looking to take profits,” said Eric Wand, strategist at Lloyds TSB.

A strong reading on durable goods data, a notoriously volatile economic indicator, added to the rush out of low-yielding bonds.

Nevertheless, fixed-income markets remained sceptical about the prospect of fresh stimulus and with stock markets possibly heading towards a disappointment, the fall in German Bunds was not seen marking the start of a new bearish bond trend.

LONDON, Aug 24 (Reuters) – Germany launched a 10-year benchmark bond at auction on Wednesday with record low yields limiting demand, but the debt’s safe-haven status attracted enough investors to absorb the new issue smoothly.

Germany sold 4.86 billion euros ($7 billion) of the September 2021 bond at an average yield of 2.15 percent — the lowest at auction since at least 1999, according to data from IFR, a Thomson Reuters service.

Some investors were reluctant to buy the new debt at such expensive prices, but persistent safe-haven demand, fuelled by fresh worries over the euro zone debt crisis and a gloomy economic outlook, ensured the auction received sufficient bids.

“The auction is pretty much as expected, i.e. slightly soft in terms of absolute quantity of bids, but nothing particularly poor and certainly not bad for a new issue at such a low yield. Indeed, the quality of bids looks good,” said Credit Agricole strategist Peter Chatwell.

The recent bout of extreme market tension over a second bailout for Greece and spread of the debt crisis to Italy and Spain has sent investors flocking to bonds from Europe’s dominant economy, driving yields lower.

Despite the European Central Bank calming some peripheral worries by agreeing to buy up Spanish and Italian bonds, the flight to quality has been sustained by data showing the global economy could be grinding to a halt.

Last week 10-year German yields fell to a record low of 2.028 percent.

LONDON, Aug 24 (Reuters) – Germany launched a new 10-year benchmark bond at auction on Wednesday with record low yields limiting demand, but investors’ desire to hold safe-haven assets was sufficient to see the new issue smoothly taken down.

Germany sold 4.86 billion euros of the September 2021 bond at an average yield of 2.15 percent — the lowest seen at auction since at least 1999, according to data from IFR, a Thomson Reuters service.

Some investors were reluctant to buy the new debt at such expensive prices, but persistent safe-haven demand, fuelled by fresh worries over the euro zone debt crisis and a gloomy economic outlook ensured the auction received sufficient bids.

“The auction is pretty much as expected, i.e. slightly soft in terms of absolute quantity of bids, but nothing particularly poor and certainly not bad for a new issue at such a low yield. Indeed, the quality of bids looks good,” said Credit Agricole strategist Peter Chatwell.

The recent bout of extreme market tension over a second bailout for Greece and spread of the debt crisis to Italy and Spain has seen investor flock to the safety of German bonds, driving yields lower.

That flight to quality has been compounded by data showing the global economy could be grinding to a halt, which last week pushed cash market yields to a record low of 2.028 percent.

The sale drew bids worth 1.4 times the amount sold, below the year’s average of 1.66, and the Bundesbank retained more of the issue that usual. The coupon on the bond, at 2.25 percent, matched the lowest ever on 10-year German government debt.

LONDON, Aug 23 (Reuters) – Money market tensions stayed high on Tuesday, with players on alert for signs that euro zone banks were being shut out of dollar funding markets and forced to borrow from the ECB, even after banks’ demand for euro-denominated loans fell.

Dollar borrowing costs were on an upward path and the cost of insuring euro zone financial debt rose, putting investor focus on the European Central Bank’s offering of dollar liquidity on Wednesday.

Last week, one bank borrowed $500 million, accessing the emergency credit line for the first time since February.

“If we see the same amount (borrowed) or higher, it will be a real indication of stress in the money market,” said Alessandro Giansanti, strategist at ING in Amsterdam.

“This will affect the euro interbank market and the peripheral banks will be the ones to suffer most after this.”

However, at an ECB tender of euro-denominated funding, banks borrowed less than they did a week ago, indicating a reduced appetite to take extra cash as a buffer against market stress.

“There has been a little bit more stability in the system, so it may be a question of banks not wanting to hoard as much cash as they wanted to in the past,” said Orlando Green, strategist at Credit Agricole in London.

LONDON/HONG KONG, Aug 23 (Reuters) – Euro zone banks cut back on their lending from the European Central Bank on Tuesday, adding to signs that recent funding pressures were stabilising, though dollar access remained the market’s key concern.

Banks borrowed around 15 billion euros less from the ECB than they did a week ago at the central bank’s regular one-week tender, indicating a reduced appetite to take extra cash on board as a buffer against market stress.

“There has been a little bit more stability in the system, so it may be a question of banks not wanting to hoard as much cash as they wanted to in the past,” said Orlando Green, strategist at Credit Agricole in London.

Under stable market conditions, banks will also typically borrow less towards the end of a reserve maintenance period.

Nevertheless the level of money in the system above that needed for banks’ daily operations remained high, showing the extent to which institutions were still cautious about lending to one another.

Earlier this month banks borrowed 50 billion euros at a special one-off ECB tender of six-month loans designed to counter rising tension stemming from the euro zone’s sovereign bond crisis.

Focus will now turn to the ECB’s offering of dollar liquidity on Wednesday. Last week, one bank borrowed $500 million from the central bank amid increasing concern that euro zone banks were struggling to find willing lenders in the huge U.S. money market sector.

LONDON, Aug 22 (Reuters) – Bunds slipped on Monday as investors cashed in on recent sharp gains but losses were likely to be limited by a grim growth outlook and as fresh doubts emerged about policymakers’ response to the euro zone debt crisis.

Later in the session, data on European Central Bank bond buying will be closely watched for signs of commitment to keeping Italian and Spanish yields at sustainable levels.

Having risen more than two full points to record highs last week, and with little economic data due for release on Monday, Bunds succumbed to some short-term profit taking in thin markets as equities rallied.

The Bund future FGBLc1 was last 39 ticks lower at 134.92, approaching technical resistance at 134.77 — the previous record high set in 2010 and surpassed last week.

The backdrop remained broadly supportive for safe-haven German debt and buying was expected to emerge on dips, keeping the contract poised to set new highs if data due later this week confirmed worries about a weaker euro zone economy.

“Clearly the uncertain global outlook and the worry about lack of policy response in Europe is keeping investors in the safety of German government bonds,” said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.

Germany maintained its opposition towards issuing a common euro zone bond — favoured by many as a lasting solution to the debt crisis — and the ECB Governing Council member Ewald Nowotny raised the prospect of delays to the planned expansion of the region’s EFSF rescue fund.

LONDON, Aug 22 (Reuters) – Bunds ticked lower on Monday as investors cashed in on recent sharp gains, but losses were likely to be limited by a grim growth outlook and as fresh doubts emerged about policymakers’ response to the euro zone debt crisis.

Later in the session, data on European Central Bank bond buying will be closely watched for signs of commitment to keeping Italian and Spanish yields at sustainable levels.

Having risen more than two full points to record highs last week, and with little economic data due for release in the session, Bunds succumbed to some short-term profit taking in thin markets as equities rallied.

Nevertheless, the backdrop remained supportive for safe-haven German debt and buying was expected to emerge on dips, keeping the contract poised to set new highs if data due later this week confirmed worries about a weaker euro zone economy.

“Clearly the uncertain global outlook and the worry about lack of policy response in Europe is keeping investors in the safety of German government bonds,” said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.

Germany maintained its opposition towards issuing a common euro zone bond — favoured by many as a lasting solution to the debt crisis — and the ECB’s Ewald Nowotny raised the prospect of delays to the planned expansion of the region’s rescue fund.

Both factors kept investors in risk-averse mood.

LONDON, Aug 19 (Reuters) – Bund futures slipped on Friday as profit taking saw prices pull back from record highs set in the previous session, but the rally remained poised to resume next week on any further signs of economic weakness.

The contract fell half a point but still ended the week over two full points higher with market participants expecting more record highs next week.

“There’s been profit-taking on long positions so we’re seeing a shallow pull-back but the bull trend could resume next week,” a trader said.

Acute concerns that the global economy was slipping into a fresh recession flared up in the previous session after forward-looking data from the U.S. came in way below consensus. Those concerns have pushed equities sharply lower and seen investors scramble for safe-haven assets.

“We’re talking about simple cash preservation in this environment,” the trader said.

While European Central Bank buying appears to have eased concerns over rising Italian and Spanish yields — both remained below the 5 percent level on Friday — a run of weak economic data has kept market tensions sky-high.

“Any kind of indication in macro data supporting the fears of economic slowdown or even sign that we are heading for a new recession are definitely something that will cause a lot of concern in the market,” said Nordea’s chief analyst Niels From.

LONDON, August 16 (Reuters) – The stress affecting the interbank lending market looks set to remain high in the medium term, analysts said on Tuesday, with the rapid deterioration in funding conditions seen in recent weeks set to hamper markets for months to come.

As worries over the health of euro zone sovereigns have spiralled, stress indicators in the vital short-term lending markets increasingly point to a dwindling appetite to lend between banks, creating the extra effect of spooking overseas lenders.

Markets show stress has edged back from its worst levels but the impact on sentiment and effects of increased dependence on long-term emergency loans from the European Central Bank mean a return to freer lending between banks will be slow in coming.

In response to a rapid worsening of the sovereign debt crisis which threatened to envelop Italy and Spain, the ECB backtracked on attempts to withdraw banking sector support and offered an unlimited amount of six-month loans.

“Without the ECB liquidity facilities I think we would have had a situation similar to that before Lehman Brothers collapsed – no trust between banks and no interbank lending,” said Barclays Capital strategist Giuseppe Maraffino.

The ECB’s emergency six-month buffer attracted 50 billion euros of bids from banks struggling to find long-term funding elsewhere, helping to prevent a full-scale funding squeeze while artificially lowering interbank rates and distorting money markets.

“I expect several more months of still abundant liquidity and money market operation to remain far from normal… Now, the starting point for a normalisation has to be a solution to the sovereign crisis,” Maraffino said.

LONDON (Reuters) – Italy faces a crucial test when it resumes bond auctions later this month — convincing investors to purchase new bonds at artificially low yields in return for the reassurance that the ECB will step in as a buyer of last resort.

The European Central Bank became the reluctant owner of billions of euros of Italian and Spanish bonds last week, bought in a bid to stop the euro zone debt crisis spreading to the Italian bond market, the bloc’s largest.

In all, the ECB spent 22 billion euros (19.4 billlion pounds) on bonds of the euro zone’s lower-rated sovereigns after reactivating its purchase programme on August 4.

The ECB purchases, during a seasonal lull in bond auctions, brought yields back to levels at which Italy can afford to issue — 10-year yields fell from a peak of almost 6.5 percent, seen as close to unsustainable, to 5 percent.

But the real test is whether the ECB’s support is enough to convince investors to buy new bonds which could offer 100 basis points less yield than the market demanded just two weeks ago.

If long-term investors cannot be swayed, the ECB quickly becomes the only buyer in a market too large for it to prop up alone, or else yields rise again, with the risk that Italy will not be able to afford to refinance its debt.

Market participants expect auctions pencilled in for August 30 to be backed by domestic investors with few alternatives to holding Italian bonds and by primary dealer banks.