EURO GOVT-Bunds lower, market gears up for supply

LONDON | Tue Jan 11, 2011 2:10am EST
LONDON Jan 11 (Reuters) - German government bonds edged
lower at Tuesday's open as U.S. Treasuries dipped and equities
were set to rise, but the market stayed edgy ahead of key tests
of sentiment towards the euro zone's more indebted issuers.
The focus this week is on whether Lisbon will be able to
raise funds in the debt market at a sustainable cost on
Wednesday or ultimately have to turn to the EU and IMF for
financial aid, as the market widely expects.

Portuguese 10-year yields remain above 7 percent --- a level
seen as an unsustainable cost of financing --- despite traders
citing talk of sizeable European Central Bank buying on Monday,
which pulled yields in around 20 basis points from session

Meanwhile, Tokyo said it was considering buying about 20
percent of euro zone bonds to be jointly issued later this month
to raise funds to support Ireland [ID:nL3E7CB076].
"Given sentiment in the periphery, that may be reasonably
supportive and we could see the recovery we saw yesterday hold
into the auction," said a trader.

Bank of Portugal board member Teodora Cardoso said on Monday
that the country would be able to put its debt crisis behind it
more easily if it received international financing, according to
news agency Lusa .

In addition to Portugal's debt offer on Wednesday, Italy and
Spain are all due to tap the bond market for funds on Thursday,
auction that will also be closely watched for any sign of

"Our base case remains that this week's auctions will
eventually be covered and consequently we see chances for
near-term relief in (euro zone) spreads from mid-week onwards,"
said Commerzbank strategist Rainer Guntermann.

At 0705 GMT, March Bund futures FGBLc1 were 20 ticks lower
at 126.08. Two-year bond yields DE2YT=TWEB were a basis point
higher at 0.875 percent, with 10-year yields DE10YT=TWEB up
1.5 bps at 2.885 percent.

Investors in U.S. Treasuries took profits on the best levels
in a month ahead of a series of auctions this week [US/].
The Netherlands will kick-off the week's issuance with the
sale of up to 3.5 billion euros of three-year bonds.
Source: Reuters.Com