LONDON (Reuters) – Italian and Spanish yields fell on Tuesday in anticipation of fresh support from European Central Bank buying while Bund futures traded in a wide range, driven by extreme volatility in equity markets.

Traders said the ECB had not yet entered markets to support Italian and Spanish debt in this session but as long as confidence remained high that it would, investors were prepared to continue buying to close out bets of further rises in yields.

“We haven’t seen (ECB buying) yet but the expectation is that they will be in again, and in good size,” a trader said.

The central bank became a reluctant buyer of Italian and Spanish debt for the first time on Monday in an emergency response to head off mounting pressure on the highly indebted sovereigns.

That support has seen yields fall by over one full percentage point on 10-year Italian and Spanish debt. The Italian yield was down 19.7 basis points on the day at 5.134 percent while Spanish debt stood at 5.05 percent, down 16.3 bps.

Despite the gains, analysts said it was important that the ECB continued to display its commitment to Spain and Italy to avoid a renewed investor selloff that would propel the countries’ yields back to unsustainable levels.

“It still remains to be seen how credible the ECB is this time round and how sustained they are in terms of their purchases, and we wouldn’t exclude for the whole thing to turn around again,” said WestLB rate strategist Michael Leister.

LONDON, Aug 5 (Reuters) – Italian and Spanish bond markets, at the centre of the euro zone debt crisis, could face another damaging blow if the spiralling risk premium on the countries’ debt makes it harder for banks to raise funds using the bonds as collateral.

Banks use government bonds as collateral to access cash in the repurchase (repo) market, in which a handful of clearing houses play a vital role, assuming lending risks to provide institutions with the cash.

However, the banks may be less willing to hold Italian and Spanish bonds if the clearing houses decide the increased credit risk markets attach to the debt warrants an additional margin call — effectively a surcharge that makes funding using the bonds more expensive.

The risk premium on Italian and Spanish government bonds is approaching levels where LCH.Clearnet — a key player in the clearing market — slapped on an extra charge to clear Irish and then Portuguese government bonds. Yields subsequently rose further and both countries have since received bailouts.

“This is one of the trigger events – it is not a good signal to send to the bond market,” said Laurence Boone, European economist at Bank of America Merrill Lynch.

The interdependence between the already-fragile banking sector and febrile sovereign bond markets could push Spain and Italy closer to the point where they can no longer afford to fund themselves — a nightmare scenario the currency bloc currently has no capacity to resolve.

“You have two triggers: the banking sector and fears the sovereign cannot fund itself. Raising the margin call is running the risk to accelerate the trigger from the banking sector,” Boone said.

LONDON, Aug 4 (Reuters) – Overnight rates dropped and Euribor futures rallied on Thursday after the European Central Bank pledged new liquidity support for the euro zone banking system in an effort to ease rising tension in financial markets.

The decision to give banks access to a one-off six-month funding operation and extend its three-month tenders until at least the end of the year should alleviate stress and keep money market rates low for longer, analysts said.

“It was clear that banks were in stress and the ECB has responded to that,” BNP Paribas rate strategist Matteo Regesta said. “This is clearly very helpful in the sense that it will remove pressure from money markets.”

The euro zone’s debt crisis has spread to threaten Italy, which has the region’s largest government bond market and is seen as too big to be rescued, ramping up tension in interbank markets.

Rates fell across the Eonia curve and Eonia forwards dropped in response to the prospect of a fresh batch of long-term liquidity hitting the market,

One-month Eonia was 8 basis points lower at 1.09 percent, and three-month rates dropped to 1.076 percent from 1.18 percent before ECB President Jean-Claude Trichet announced the measures at a news conference after the bank kept interest rates on hold.

The overnight curve, which measures central bank rate expectations, was already flat going into Trichet’s news conference, pricing out rate hikes for around 12 months against a backdrop of weak global growth and increased uncertainty in euro zone bond markets.

LONDON (Reuters) – The euro zone’s escalating debt crisis threatened to enter a dangerous new phase on Wednesday as volatile trading saw no let-up in pressures driving Italy, the region’s largest government bond market, towards a tipping point.

Skittish investors showed little willingness to unwind the recent flight to quality that has dragged Italian yields above 6 percent — raising serious questions on the country’s cost of financing — and pushed German Bund futures to a one-year high.

Sentiment was dominated by twin concerns that the euro zone’s recently agreed attempts to tackle the debt crisis lacked sufficient firepower to protect Italy, and the threat of a global slowdown that could heap more pressure on the region.

“To me, I can’t see why you would want to buy even at these levels — I think this situation gets a lot worse before it gets better so for me any pullback in Bunds or strength in the periphery is a chance to put more money on,” a trader said.

Italian 10-year bond yields eased off the 14-year highs reached earlier this week, down 4 basis points on the day at 6.10 percent. Equivalent Spanish yields were down 3 bps on the day at 6.27 percent.

But this was still within a sight of levels that could see selling pressure stepped up and both countries spiral towards the point where they can no longer afford to raise money from capital markets.

“For both Spain and Italy the 7 percent level in yields is the one everyone is focussed on,” said WestLB rate strategist Michael Leister.

LONDON, Aug 2 (Reuters) – Italian bond yields soared to a 14-year high on Tuesday as worries over the outlook for global economic growth prompted crisis-weary investors to take refuge in safe-haven assets.

More weak U.S. data, on the heels of sub-par manufacturing numbers in Europe on Monday, saw investors sell riskier assets, including stocks and peripheral euro zone debt.

Bonds issued by Spain and especially Italy — the latest focus of market anxiety thanks to its large debts — were under particular pressure less than two weeks after a deal aimed at ring-fencing contagion but which left many questions unanswered.

Budget cuts currently being voted on in Washington could hamper the global economy’s recovery further — an additional stumbling block to an already fragile euro zone rebound.

“The fear of the market is that the world is going into recession again…and in the euro zone the peripheral markets are the ones that will suffer most,” said Alessandro Giansanti, strategist at ING in Amsterdam.

A hit to global growth would hurt the euro zone’s weaker economies hard, hampering their efforts to grow out from under increasingly unsustainable debt burdens and leaving little chance of a reversal in fortunes, analysts said.

It could also put more upward pressure on peripheral yields making it increasingly costly for those countries to raise funds in commercial markets.

LONDON, Aug 2 (Reuters) – Italian bond yields soared to a 14-year high on Tuesday as the spread of the euro zone debt crisis showed no signs of slowing with a grim U.S. economic outlook added to investors’ concerns.

Bunds rallied to their highest since last October and equities suffered with a last-gasp deal to avert U.S. default and raise the country’s borrowing limit bringing no lasting relief to financial markets.

Yields on lower-rated euro zone debt, especially Italian and Spanish bonds, rose to new highs as concerns about the knock-on effect of weak growth in the world’s largest economy and the lingering threat of a rating downgrade took over from worries about a default on U.S. Treasuries.

“The fear of the market is that the world is going into recession again…and in the euro zone the peripheral markets are the ones that will suffer most,” said Alessandro Giansanti, strategist at ING in Amsterdam

A hit to global growth would hurt the euro zone’s weaker economies hard, hampering their efforts to grow out from under increasingly unsustainable debt burdens and leaving little chance of a reversal in fortunes, analysts said.

“In Italy they’re having to pay 6 percent on 10-year paper and even if nominal GDP is around 2 percent — that leaves you a 3-4 percent gap and how they’re going to fund that in future is really unclear,” a London-based strategist said.

Yields on 10-year Italian and Spanish debt rose sharply, surpassing recent peaks to reach their highest since 1997, while the risk premium over German debt on both countries’ bonds hit the highest since the launch of the euro.

LONDON, Aug 2 (Reuters) – Peripheral bond yields soared and German Bunds rallied on Tuesday as a grim U.S. economic outlook added to the concerns of investors as the spread of the euro zone’s debt crisis showing no signs of slowing.

Bunds rallied to their highest since last October and equities suffered with a last-gasp deal to avert U.S. default and raise the country’s borrowing limit bringing no lasting relief to financial markets.

Yields on lower-rated euro zone debt rose to new highs as concerns about the knock-on effect of weak growth in the world’s largest economy and the lingering threat of a rating downgrade took over from worries about a default on U.S. Treasuries.

“The fear of the market is that the world is going into recession again…and in the euro zone the peripheral markets are the ones that will suffer most,” said Alessandro Giansanti, strategist at ING in Amsterdam

A hit to global growth would hurt the euro zone’s weaker economies hard, hampering their efforts to grow out from under increasingly unsustainable debt burdens, analysts said.

Yields on 10-year Italian and Spanish debt rose sharply, surpassing recent peaks to reach their highest since 1997, while the risk premium over German debt on both countries’ bonds hit the highest since the launch of the euro.

“We think some of the recent selloff (in Spain and Italy) is not justified in terms of fundamentals but sentiment is so negative at the moment, investors are increasing short positions,” said Nick Stamenkovic, strategist at RIA Capital Markets. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

LONDON (Reuters) – Treasury prices fell on Monday as U.S. lawmakers neared a deal to increase the country’s borrowing limit and avert a default, though demand for U.S. debt was unlikely to slip much further owing to an increasingly weak economic outlook.

Opposing U.S. politicians appeared to have reached a compromise on how to balance budget cuts with an increase in the country’s debt ceiling which would give the Treasury a green light to keep issuing debt to pay its bills.

Treasury futures fell and equities rallied in Asia .MIAPJ0000PUS and Europe .FTEU3 as markets breathed a sigh of relief at the prospect of an end to the political stalemate that pushed the country to the brink of a default on its debt.

The deal was expected to win approval by the U.S. Senate and House of Representatives later in the day.

“It’s definitely one important thing less on the list of things to worry about, but the market reaction is relatively moderate,” said Kornelius Purps, strategist at Unicredit.

Investors quickly re-focused on indications of weak growth in the U.S. economy, highlighted by data showing a meager 1.3 percent growth rate in the second quarter of the year.

“The positive impact is already fading as we have enough on our list. Most prominent with respect to the U.S. is the economic outlook which has been severely hit by Friday’s GDP figures.”

DUBLIN/LONDON (Reuters) – Ireland’s insistence that it is different from Greece and the rest of the euro zone periphery appears finally to be striking a chord among investors.

Irish sovereign debt prices staged an impressive rally this week in spite of growing bond market volatility elsewhere in the euro zone, which was hit by doubt over the effectiveness of the latest bailout plan for Athens and concern about the ability of Italy and Spain to weather the storm.

While Madrid and Rome have only come under heavy market pressure over the past several weeks, Dublin is a veteran of the regional debt crisis, and its long-running efforts to tackle its banking and fiscal problems — together with a relaxation of the terms of its 85 billion euro ($122 billion) international bailout — are encouraging investors to take a second look.

“I think there is a re-rating by the market of Ireland,” said Fergal O’Leary, head of capital markets at Glas Securities in Dublin.

“There is a growing feeling among international guys that Ireland has faced up to its problems, it is doing what it needs to do.”

Unlike fellow bailout recipients Greece and Portugal, Ireland is meeting its budget deficit targets and has been singled out for praise by the International Monetary Fund and the European Union for its determination to get its annual deficit, still the largest in the euro zone as a proportion of gross domestic product, under control.

Although Ireland is mid-way through an unprecedented eight-year cycle of austerity, social unrest is almost non-existent and unlike Greece and Portugal, Ireland is expected to return to economic growth this year because of a vibrant export sector and the flexibility of its economy.

LONDON, July 29 (Reuters) – Spanish yields rose on Friday after Moody’s placed the country’s credit rating on review for downgrade, fuelling fears about the spread of the euro zone debt crisis and boosting already-strong demand for safe-haven assets.

Bund futures FGBLc1 rallied sharply, with fresh delays in the U.S. political battle to avoid an unprecedented default adding to the risk-averse tone among investors.

In the euro zone, the sovereign debt crisis continued to show signs of spreading as Moody’s placed Spain’s Aa2 rating on review for a possible downgrade, citing weak growth and the risk of a sustained rise in funding costs.

“This move just heightens the uncertainty in the market … there are a lot of reasons why the Bund is up today,” said DZ Bank strategist Glenn Marci.

“In relation to Spain, people from within the (euro area) are piling up their holdings of Bunds, and also there may be some risk-averse flows coming from the U.S.”

Bund futures FGBLc1 rose over half a point, briefly breaking through the 130 barrier for only the second time since last November. The July 12 intraday high of 130.91 was seen as the next technical resistance level to watch.

The rating action on Spain comes just one week after European policymakers unveiled a package of measures aimed at halting the spread of the region’s debt crisis and shoring up market confidence.