German government bonds are trading higher Friday as EMU peripheral spreads widen led by Spain, albeit in thin volumes as market awaits key US payrolls data. The short-dated issues outperformed as the yield on the 2-year benchmark Schatz yield traded negative territory – not seen since June 5, and in turn steepened the German yield curve. FTQ buying also seen as EMU peripheral spreads widened (ex Greece). Portuguese spreads widened on story that Portugal’s Constitutional Court has ruled that part of the government’s austerity measures are unlawful, according to the Telegraph. Spain spreads widened the most amid unsubstantiated market chatter of Spain sovereign downgrade. However, some traders questioned the validity of the rumour, which comes as Spanish yields rise with 10-year Bono approaching key 7%. Spain 10-year yield spread is 21bps wider at +557bps. However, Bunds underperformed semi-core bonds on market talk of decent Japanese buying of France and Dutch bonds hunting for yield. Street names buying Dutch bonds. Sources also note domestic accounts buying semi-core.
EasyForexNews Research Team