German government bonds opened lower Thurs on profit-taking following strong risk-aversion bid on increased speculation of a Greek euro exit. A strong flight-to-quality bid was seen yesterday following story that the Eurogroup Working Group (EWG) has advised eurozone members to prepare individual contingency plans for a possible Greece exit, sent German yields to fresh record lows, despite denials from the Greek Finance Ministry. In addition, traders also noted unsubstantiated market that German Chancellor Angela Merkel has verbally agreed to a euro area bank deposit guarantee, which also triggered short-covering rally in risk assets. However, traders see Bunds remaining underpinned on continued uncertainty surrounding Greece, and also market talk of further bank downgrades – Austrian banks are next on Moody’s review list with speculation of further sovereign ratings downgrades also doing the rounds after Citi released research report calling for downgrades in Ireland, Italy, Portugal and Spain. This is hardly ground breaking research as S&P, Moody’s & Fitch have these countries on neg outlook.
EasyForexNews Research Team