German government bonds are opening higher Tuesday following dovish comments from Fed Chairman Bernanke and ahead of auctions from EMU periphery issuers. Traders also cite flight-to-quality buying on the back of an article in Der Spiegel released late Monday titled “The Hidden Risks Lurk in ECB’s Accounts”, and notes the central bank “may face hidden risks of E500bln in the form of claims amassed under the Target2 European interbank payments system”. This story isn’t new and the market is aware of disagreements within the ECB over the expansion of the Eurosystem’s balance sheet, which has led to resignations of two ECB officials — Jurgen Stark and Axel Weber, and then followed up by Jenns Weidmann letter to Mario Draghi, warning about Target 2 liabilities, and proposing a return to the collateral rules before the eurozone sovereign crisis. Attention turns to auctions in the periphery market, where Spain sells 3-/6-month T-bills for between E2.0bln-E3.0bln and Italy sells zero coupon CTZ and linker issues for up to E4.0bln. US sells 2-year Notes for $35.0bln.
EasyForexNews Research Team