Mon Dec 3, 2012 5:45am EST
* Pricing on Greece debt buyback higher than expected
* Details boost sentiment towards periphery
* Bunds pare gains but US "fiscal cliff" continues to support
By Ana Nicolaci da Costa
LONDON, Dec 3 (Reuters) - Greek government bond prices rallied on Monday after details were announced of its debt buy-back - a central part of a deal to release aid funds to the economically crippled country.
Yields on other lower-rated debt also fell, though German Bund futures stuck to gains because of underlying concerns over U.S. budget talks.
Greece set a smaller discount than expected in pricing buy backs of each of its 20 series of outstanding bonds. It set a spread of two percentage points - from a minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1 percent depending on the bond maturities.
"It indicates they really want the swap to succeed," Ricardo Barbieri, strategist at Mizuho said, referring to the pricing.
"Some investors might be tempted to participate in the swap because of the ability to simplify their position, should they wish to maintain exposure to Greece, otherwise an opportunity to exit completely their positions at a level that is better than Friday's close." Greek bond prices rose across the strip and ten-year Greek bonds yields fell 153 basis points to 14.63 percent.
Spanish 10-year yields were down 9.3 basis points to 5.25 percent and equivalent Italian borrowing costs 6.6 bps lower at 4.44 percent.
German Bund futures stood just in positive territory, up 10 ticks on the day at 142.89 after early gains were eroded.
"(The Greek details) are better than expected. Therefore, periphery now getting a bid... and that's weighing on Bunds," one trader said. The bond buyback is key to the efforts of its foreign lenders to put Greece's debt back on a sustainable footing, and its success would pave the way for the country to get long-delayed funding to avoid bankruptcy.
Analysts will have to wait to see the final demand for the buyback to determine its longer-term impact on the market.
Investors must declare their interest by Dec. 7 and the expected settlement date is Dec. 17.
"The gain in the Bund is just reflecting that the market is still waiting before taking any strong decision. It's just wait-and-see behaviour," Patrick Jacq, European rate strategist at BNP Paribas said.
BUND'S RESILIENCE
German Bunds remained in positive territory even as data in the euro zone improved and despite gains in equity markets.
The contraction in activity at euro zone manufacturers eased to an eight-month low in November, although a meaningful recovery still looks a long way off, a survey showed on Monday. .
European equity markets rose, also buoyed by improving manufacturing data from China..
But German bonds, considered safer investments, have remained underpinned thanks to an impasse in U.S. budget talks, according to analysts.
Treasury Secretary Timothy Geithner said on Sunday that he "can't promise" that the United States won't go over the "fiscal cliff" of tax increases and spending cuts that will be automatically triggered in early 2013, insisting it is up to congressional Republicans..
Without a deal, economists fear the U.S. economy could fall back into recession.
Investors will get the latest insight into the health of the world's largest economy through manufacturing data later in the day and jobs numbers on Friday.
Data on Friday will likely show employment growth slowed to 100,000 jobs last month from 171,000 in October, according to a Reuters poll of economists. U.S. manufacturing data this week is also likely to suggest a fourth-quarter slowdown is at hand.
"The Bund remains surprisingly well supported given that we've had a more positive trend in equities in recent days. I think it's simply because the market is still very uncertain about what will happen in the U.S. in terms of the fiscal cliff," Barbieri added.
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