Fri Jul 19, 2013 4:57am EDT
* Euro zone bonds stabilize, no major data for direction
* Portugal overcomes political hurdle, Sunday deadline eyed
* German bonds seen in demand in illiquid, summer period
By Ana Nicolaci da Costa
LONDON, July 19 (Reuters) - Euro zone bonds stabilised on Friday after gaining this week on the back of healthy auctions and reassuring testimony from the head of the U.S. Federal Reserve.
They were expected to remain steady, without any major data to provide direction.
Ten-year Spanish government bond yields were 1.3 basis points higher at 4.65 percent and the Italian equivalent was down 1.3 bps at 4.41 percent. Portuguese 10-year yields were 3.3 bps lower at 7.07 percent and five-year yields were 2.4 bps lower at 6.82 percent.
But the yield gap between Portugal's 10- and five-year bonds remained close to its lowest in a year, suggesting investors were still worried about the country's credit quality.
German Bund futures were 3 ticks up on the day at 144.26, having hit its highest since late May earlier at 144.3.
"We are entering the summer period where liquidity is more difficult to find than in other periods, so with lower liquidity and probably slightly higher volatility, very liquid markets are favoured and the Bund is a very liquid market," Patrick Jacq, European rate strategist at BNP Paribas said
Investors may focus on Sunday's deadline that Portugal's Socialists and the two ruling coalition parties have given themselves to conclude crisis talks requested by the president.
"I don't really think we will see a major negative surprise over the weekend. Of course you have always got that tail risk but they will somehow find a way to keep the government for at least one more year, then we will see what happens," Christian Lenk, strategist at DZ Bank said.
Federal Reserve Chairman Ben Bernanke, meanwhile, eased some market nerves by telling the U.S. Congress this week that the central bank's plans to scale back asset-purchases later this year were not set in stone and depended on the strength of the economy.
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