LONDON (Reuters) – The euro zone’s EFSF rescue fund is eyeing a return to the bond market at the end of February or early March to enable it to fulfill its next disbursement for Ireland, an EU source said on Wednesday.

Plans to leverage the fund’s capacity and give it more firepower to prevent the spread of the debt crisis were also progressing, with the first of two mechanisms it could make use of expected to be in place by the end of the month, according to the source with direct knowledge of the matter.

The European Financial Stability Facility (EFSF) is currently weighing its options and could issue a new T-bill in the third week of February or undertake a new syndicated bond issue, the source said.

Europe’s rescue fund raised 3 billion euros in January as confidence returned to the bond markets and the euro zone crisis abated.

The huge injection of liquidity into the European banking system by the European Central Bank at the end of December has also contributed to more favorable market conditions for issuers.

The EFSF would not just eye the three-year part of the curve, where liquidity has been abundant, but longer maturities as well.

“The impact of the LTRO (long-term refinancing operation) has also been on the five-year sector,” an EU source said. “There is strong demand for long dated paper and investors are starving for yield.”

LONDON, Feb 7 (Reuters) – German Bund futures slipped by more than half a point on Tuesday as demand for safe-haven assets cooled on signs that Greece may reach a political agreement over painful reforms necessary to secure badly needed bailout funding.

Greece’s government is preparing a document to present to political leaders for approval, potentially taking the country one step closer to a 130 billion euro bailout deal needed to avert the chaos of a debt default in March.

Confirmation of an accord, which could come as early as Tuesday evening, may spark a rally in the region’s more risky bonds, driving Spanish and Italian borrowing costs lower and pushing Bund yields higher towards a fresh test of the 2 percent level.

Even the prospect of an agreement later in the day was enough to prompt investors to cut their holdings of low-risk German Bunds and reduce the risk premium on Italian debt to its lowest since the end of October.

“It’s really all about Greece and speculation there: expectation is building that they will cobble something together because the consequences of them not are pretty gloom and doom for all of us,” a trader said.

The March Bund futures contract reversed earlier gains to hit a low of 137.83, down 80 ticks on the day.

Bunds could fall as far as the Jan. 24 low of 137.18, having broken through resistance at 138.13 – the bottom of Friday’s selloff, UBS technical charts suggested.

LONDON, Feb 6 (Reuters) – Interbank markets show little expectation that the European Central Bank will commit to new injections of long-term banking loans or signal a cut in interest rates at its February policy meeting later this week.

Prices showed the predicted path of overnight bank to bank lending rates – which are typically closely correlated with the ECB refinancing rate – was broadly flat over the first half of the year.

Analysts expect ECB President Mario Draghi to praise the impact of steps taken in December which have boosted banks’ cash buffers with half a trillion euros of three-year loans, unfrozen bank funding markets and pushed interbank borrowing rates lower.

“Currently there is not the need for the ECB to come up with more ideas,” said Kornelius Purps, strategist at Unicredit.

“The risk that banks will face serious difficulties in getting their business funding has been trimmed extremely successfully.”

Reflecting this view, measures of counterparty stress in the bank-to-bank lending market eased further. The Libor/OIS spread narrowed to stand at 68 basis points, down from more than 90 bps in December, and forward markets pointed to a spread of around 40 bps by year-end.

The central bank will hold on Feb. 29 a second offer of three-month loans, which is expected to add to the large surplus of long-term cash in the euro system.

LONDON, Jan 31 (Reuters) – Portuguese bond yields have soared to levels that show markets expect the country will be unable to repay its debts without more bailout cash and will follow Greece in asking bondholders to stomach losses on their investments.

Ten-year Portuguese bond yields hit a euro-era high of more than 17 percent on Monday, matching levels seen in Greece five months ago.

When Greek yields were last at 17 percent, in August, Athens was already negotiating a deal with private creditors to accept a loss on their bondholdings – dubbed private sector involvement (PSI) – which was needed to unlock a second infusion of bailout cash.

With yields at such high levels, Greece was frozen out of debt markets and had to ask for extra funding when it became clear it would not be able to raise money from investors once its aid package was exhausted.

Portuguese bond prices – 10-year paper trades at just 42 percent of face value – suggest investors do not expect to get all their money back and that the government will be forced to seek a restructuring of its debt.

“At some point you have a deadline looming where the bailout package assumes a return to the bond market… for now the path of least resistance seems to be more repricing towards a potential Greek-style PSI,” said David Schnautz, strategist at Commerzbank in London.

Portugal is scheduled to resume selling bonds in 2013 under the terms of its current 78 billion euro bailout.

LONDON, Jan 31 (Reuters) – German Bund futures fell on Tuesday and demand for some peripheral bonds rose as EU states agreed to a pact for stricter budget discipline, although the improved sentiment towards risk was overshadowed by the still-unresolved Greek debt swap talks.

European leaders approved new measures intended to prevent a repeat of the massive overspending that contributed to the current crisis, giving risk sentiment a lift, but differences remained over the limits of austerity.

In Greece, Prime Minister Lucas Papademos said he hoped to reach deals by the end of the week both with its private creditors over restructuring 200 billion euros of debt and with its international lenders on conditions tied to a second bailout.

That eased some of the recent pressure on Portugal, which has been seen as next in line after Greece for requiring a second bailout. Ten-year Portuguese government bond yields tumbled 67 basis points, but at 16.73 percent they remain prohibitively high.

“We are seeing Portugal very much under the cull still so that obviously should get more and more difficult for the market to shrug off,” David Schnautz, interest rate strategist at Commerzbank said.

German Bund futures fell 39 ticks on the day to 139.28 but still within sight of a record high of 140.23.

“We are flirting with a real attack on the 140 level in Bund (futures)… we just touched 1.80 in the 10-year yield and there seems to be something of a resistance there, (but) we have already seen buying on dips,” Schnautz added.

LONDON, Jan 31 (Reuters) – German debt futures fell and demand for Italian and Spanish bonds firmed on Tuesday as markets looked for positives in talks on Greek debt writedowns and an agreement of a new European fiscal pact.

European leaders approved strict new measures on sovereign budget discipline, intended to prevent a repeat of the massive overspending pushing some to sell bonds of higher-risk euro zone states.

In response, the price of German debt futures slipped 22 ticks to 139.45 as demand for the one of euro zone’s safest and most liquid assets eased from recent extremes.

“The move that we are seeing is based on the idea that at least the politicians didn’t disappoint investors too much. In terms of new information, there wasn’t that much from the summit,” said Michael Leister, strategist at DZ Bank.

“There’s a bit of relief and a bit of a technical reaction given the Bund is reaching critical levels… but from our point of view (the pullback) doesn’t really look convincing.”

On Monday, the contract rose close to its record high of 140.23 after a recent slew of rating downgrades and with markets targeting Portugal as the bloc’s next weakest link behind Greece.

UBS technical analysis said the outlook remained bullish for German debt while the contract traded above 138.78 – the 38 percent Fibonacci retracement of the rise since Jan 24.

LONDON/LISBON, Jan 30 (Reuters) – Portugal’s slide towards becoming the next Greece – needing a second bailout to avoid bankruptcy – accelerated on Monday as untrusting underwriters hiked the cost of insuring Lisbon’s bonds to new highs and insisted it be paid up front.

Business and consumer confidence also hit record lows, the latter battered by the lower salaries and across-the-board tax hikes that were part of Portugal’s painful austerity programme.

Banks and others offering default insurance to holders of Portuguese sovereign debt have begun demanding huge up-front payments rather than allowing costs to be spread over the term of the contract.

On Monday, this meant that it cost a whopping 3.95 million euros to insure 10 million euros in bonds over five years, payable now.

It made Portugal the second-highest sovereign to insure in the world, after Greece, and implied a huge lack of confidence in market circles about Lisbon’s future.

While Italian and Spanish borrowing costs have fallen, Portuguese bonds have come under intense pressure from investors after Standard & Poor’s downgraded 15 euro zone countries earlier in January, putting Portugal in the “junk” category.

Its already soaring 10-year bond yields surged on Monday by 171 basis points to 17.353 percent, suffering their third worst day in the euro era and adding to expectations that Lisbon will have to get a second bailout from the European Union and International Monetary Fund to go with the 78 billion euro package it has already been handed.

LONDON, Jan 30 (Reuters) – The price of Portuguese bonds tumbled on Monday, driven by evaporating confidence that the country can avoid following in Greece’s footsteps by requiring more bailout cash and a writedown of its existing debt.

Investors were demanding an annual return of more than 17 percent – the most since the launch of the single currency – to buy 10-year Portuguese debt in the secondary market, sending bond prices tumbling to around 40 percent of their face value.

The grim perception of Portugal’s ability to overcome a poor economic outlook and repay its debts meant that underwriters of insurance on its bonds saw a high enough chance of a default to demand payment up front on new contracts.

“Portugal is the new Greece… People have learned their lesson with Greece and I think they will keep (Portugal) in the firing line for now,” a trader said.

Traders also pointed to a fresh round of forced selling, with some index-linked investors having to ditch the bonds from their portfolio before month-end after Standard and Poor’s became on Jan. 13 the third rating agency to give Portugal a junk rating.

Ten-year Portuguese yields rose by 171 basis points to 17.353 percent, suffering their third worst day in the euro era.

ITALY QUESTIONS PERSIST

LONDON/LISBON, Jan 30 (Reuters) – Portugal’s slide towards becoming the next Greece – needing a second bailout to avoid chaotic bankruptcy – geared up a notch on Monday as untrusting underwriters hiked the cost of insuring Lisbon’s bonds to new highs and insisted it be paid up front.

Business and consumer confidence also hit record lows, the latter battered by the lower salaries and across-the-board tax hikes that were part of Portugal’s painful austerity programme.

Banks and others offering default insurance to holders of Portuguese sovereign debt have begun demanding huge up-front payments rather than allowing costs to be spread over the term of the contract.

On Monday, this meant that it cost a whopping 3.95 million euros to insure 10 million euros in bonds over five years, payable now.

It made Portugal the second-highest sovereign to insure in the world, after Greece, and implied a huge lack of confidence in market circles about Lisbon’s future.

Portuguese bonds have come under particularly intense pressure from investors after Standard & Poor’s downgraded 15 euro zone countries earlier in January, putting Portugal in the “junk” category.

That shuts it out from tapping capital markets in the forseeable future and makes its task of meeting future debt repayments tough.

LONDON, Jan 25 (Reuters) – German Bund futures rallied on Wednesday as uncertainty remained over the fate of crucial Greek debt swap talks and after the U.S. Federal Reserve said it will likely not raise interest rates until at least late 2014, even later than investors expected.

German Bund futures extended their gains in after-hours trading to a session high of 138.38 – more than 100 ticks higher on the day, in line with gains in U.S. Treasuries.

“The tone of the statement sounds more dovish than in December,” said Annalisa Piazza, a market analyst at Newedge Strategy.

The Bund had already risen to a settlement close of 137.82, before the Fed verdict, ending a four day run of losses. Ten-year Italian bonds came under pressure as appetite for risk waned, with yields rising 6.3 basis points on the day to 6.24 percent around the time markets settled in Europe.

Greece and its private creditors are struggling to reach an agreement on how to secure the large debt reduction Athens needs to make in order to win access to aid funds.

That has led to calls, notably from the International Monetary Fund, for the public sector to consider sharing the burden of losses needed to set Greece on a sustainable path.

That could include the European Central Bank which is estimated to have bought around 40 billion euros of Greek bonds since May 2010 in an emergency effort to stem pressure on the ailing sovereign.