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.

LONDON, July 28 (Reuters) – Italian bond yields rose across the curve in a volatile trading session on Thursday, after high auction yields inflamed worries about the country’s debt burden against the nervy backdrop of U.S. politicians flirting with a default.

Safe-haven German debt made only limited gains, but rose to within a tick of the highest settlement close since last November as continued deadlock in talks over raising the U.S. debt ceiling supported demand for triple-A assets.

This highlighted the prevailing unease among market participants over how and when the sweeping rescue plan announced last week to save Greece and ease contagion concerns will be implemented.

“There’s no clear timeline at this point … There’s a vacuum in the market, and market sentiment wasn’t that good to start off with owing to the debt discussions in the U.S,” said Elwin de Groot, senior strategist at Rabobank.

“Overall it’s a pretty bad cocktail.”

Italy has continued to feel pressure from markets because the package of euro zone anti-crisis measures did not include an increase in the size of the bloc’s rescue fund, analysts said.

This is seen as essential if the European Financial Stability Facility is to provide assistance for Italy, the region’s third-largest economy.

LONDON, July 25 (Reuters) – Money markets are expecting an extended pause in the ECB’s monetary tightening cycle as concern over weak growth in the region’s peripheral economies outweighs any relief from a bumper new deal to stem the debt crisis.

Politicians last week agreed on a wide-ranging package of measures designed to relieve the debt burden on Greece and stop the region’s crisis from enveloping the larger and systemically important economies of Spain and Italy.

A high degree of uncertainty ahead of the deal pushed back expectations of another interest rate rise by the European Central Bank into 2012.

While last Friday’s package brought some relief to bond investors, money market participants remain sceptical that the ECB can continue to justify raising interest rates to curb inflation in core economies.

“On the economics front things are actually disappointing. I would argue that the chances of a rate hike (this year) have actually fallen further,” said Elwin de Groot, senior economist at Rabobank.

Weaker-than-expected purchasing managers’ surveys last week showed private sector growth in the euro zone ground to a halt and manufacturing output contracted, raising fears that the ECB’s monetary tightening could crush an increasingly fragile recovery.

The Eonia overnight rate curve showed a spread of 11 basis points in rate expectations between the ECB’s next meeting in August and the first policy meeting of next year, implying a less than 50 percent chance of another hike.

LONDON, July 12 (Reuters) – Markets cut expectations that the European Central Bank would raise interest rates again this year as the euro zone debt crisis spread to Italy, the region’s third largest economy.

Pricing of the overnight rate curve — used as a proxy for central bank rates — showed euro zone interest rates were now more likely to remain unchanged into year-end than to rise.

Less than a week ago the central bank raised rates to 1.5 percent and showed no sign of backing away from its intention to keep hiking to control inflation stemming from core European countries. Last Friday, markets were pricing in a good chance of a third rate hike.

Those expectations have been cut sharply in light of the rapid deterioration of confidence in Italian sovereign debt and, with no end to bond market stress in sight, were unlikely to rebound any time soon, analysts said.

“We’re pricing out ECB hikes to a large extent. The Eonia forwards curve is basically flat, with no hike priced in,” said Commerzbank rate strategist Benjamin Schroeder.

“The ECB is still on course (to hike rates) judging by its previous statements so I would expect a steeper curve… but that return to a steeper curve might come rather slowly.”

Eonia rates linked to year-end were only 11bps higher than the implied rate for the ECB’s August meeting — indicating less than a 50 percent chance of another hike this year.

LONDON (Reuters) – International bank plans for a voluntary program of debt swaps and buybacks to help rescue Greece won’t trigger a “credit event” and payment of CDS contracts, derivatives body ISDA told Reuters on Friday, limiting the fallout of any default rating.

While credit rating agencies are expected to cut Greece’s rating to selective default, one condition for a credit event affecting CDS is that changes in the terms of debt must be binding on all holders, which ISDA said was not the case.

“It’s clearly a voluntary exchange, and I don’t see how that triggers (a credit event), because there’s nothing there that’s binding on all holders of the debt,” said David Geen, general counsel at the International Swaps and Derivatives Association said in a telephone interview.

The program for private-sector involvement in a second Greek bailout announced late on Thursday relies on banks voluntarily exchanging existing Greek government bonds for a combination of four new instruments.

Private sector investors were expected to take a 21 percent loss on their Greek bond holdings as part of a 37 billion euro contribution to the Greece rescue plan.

An ISDA committee has the final say on whether a credit event has occurred, triggering payment of credit default swap contracts.

The committee must be asked by a CDS market participant to consider whether a credit event has occurred, but no request has yet been made.

LONDON, July 21 (Reuters) – Peripheral debt rallied strongly on Thursday as investors welcomed draft documents suggesting that European leaders would agree to expand the role of the region’s bailout fund as part of a deal to rescue Greece.

Yields tumbled on short-dated Greek debt, down more than 4.5 percent in the two-year segment, while the more liquid Italian and Spanish debt markets also showed substantial relief. The region’s triple-A benchmark German debt sold off sharply.

Draft conclusions of the highly-anticipated summit showed a the European Financial Stability Facility could gain sweeping new powers aimed at rescuing debt-laden Greece and stemming the spread of the region’s debt crisis.

“The rumours around these draft conclusions have already got the market moving positively, and I think think that has further to go,” said Niels From, chief analyst at Nordea.

“It really shows, in the 11th hour, leadership from the euro zone leaders.”

Analysts focused on the EFSF element of the wider plan as the most likely to bring relief because it could potentially address the systemic threat seen in the last two weeks as Italy and Spain have been dragged into the debt crisis.

“The size of the EFSF, currently 440 billion (euros), is still on the low side to keep it credible in the future. Therefore if they would increase the volume of the EFSF … then it would be extremely helpful,” From said.

LONDON, July 20 (Reuters) – Yields on lower-rated euro zone debt fell for the second day running on Wednesday as investors showed a growing belief that European leaders will agree on a way to ease Greece’s debt burden and stem the spread of the debt crisis.

The recent scramble for safe-haven German debt stalled, with the futures contract falling almost a point on optimism that an agreement on how to involve private bondholders in a second Greek bailout would come out of an EU summit on Thursday.

“Going into the week people weren’t even sure the summit was going to happen… now there seems to be a lot going on behind the scenes, there’s definitely a more positive tone,” a trader said.

The head of the European Commission said EU leaders must find a convincing solution to Greece’s debt crisis at a summit or the global economy would pay the price.

The Greek bond yield spread over German 10-year Bunds contracted by around 65 bps to its tightest levels this week, although it is still at an extremely high 1,470 basis points. Similarly, Portuguese, Irish, Spanish and Italian yields fell on the day.

However, market participants said that most of the trading that was aimed at profiting from an improvement in risk appetite after the summit was not done in the most at-risk bonds of Greece, Portugal and Ireland.

Investors were instead backing more liquid proxies where positions could be closed quickly if a solution failed to materialise, traders said.

NEW YORK/LONDON, July 19 (Reuters) – U.S. Treasury bill yields not far above zero were no deterrent on Tuesday to demand in an auction of $28 billion of four week bills which was underpinned by tight supply and safe-haven buying.

The U.S. Treasury on Tuesday auctioned the bills at a high rate of 0.005 percent, down from 0.02 percent in a similar auction last week, but up marginally from a high rate of zero in a four-week bill auction two weeks ago. For details, see [ID:nTAR000365]

The sale brought a lower yield than where four-week bills were trading in the when-issued market at auction time, an indication investors bid aggressively for the debt.

“The four-week bill auction stopped half a basis point short of the 11:30 a.m. (Eastern time) when-issued bid side at half a basis point,” said Thomas Simons, money market economist with Jefferies & Co in New York.

Demand for bills has been strong in tightened supply in recent months, after the Federal Deposit Insurance Corp on April 1 began a new method of assessing deposit insurance fees from banks, which has forced cash back into the market and boosted demand for bills.

Short-term Treasuries have also been bolstered by investors looking for safe-haven assets during the debt crisis in Europe and as the U.S. government wrangles over raising the debt ceiling ahead of an Aug. 2 deadline to avoid default.

“Bill supply has been steadily declining in recent weeks and appears as though it is likely to do so for at least a few more weeks,” Simons said, adding “this has been the strongest driver for bills, but economic fundamentals and safe-haven flows also support low yields.”