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Thu Apr 25, 2013 6:39am EDT
* Investors cash in on Italian, Spanish bond rally * Bunds considered expensive, vulnerable to correction * Central bank liquidity to limit fall across assets By Ana Nicolaci da Costa LONDON, April 25 (Reuters) - Italian and Spanish bond prices dipped on Thursday as investors took profit on a week of strong gains but analysts said the sell-off should be limited by abundant liquidity from central banks in the financial system. The European Central Bank's promise to protect the euro with a bond-buying program has deterred sellers of bonds issued by the euro zone most indebted governments at the same time as easy monetary policy globally has raised investors' appetite for higher-yielding investments. Downbeat data from Germany has also raised expectations of a cut in official ECB interest rates as early as next week, underpinning bonds across the credit spectrum. "We've seen a very strong rally in the periphery and at some point the market is looking for some reason to take these profits," Christian Lenk, strategist at DZ Bank said. "The Spanish (unemployment) number could be one of the triggers in combination with comments by (ECB Executive Board member Joerg) Asmussen that he is doubting the usefulness of such a cut." In a series of remarks on Wednesday and Thursday, Asmussen warned that the benefit of rate cuts for the euro zone's battered economy, and specifically its struggling periphery, would be limited. Ten-year Spanish yields rose 10 basis points to 4.38 percent as data showing a higher than forecast unemployment rate in the euro zone's fourth largest economy highlighted its struggle to generate growth. Italian yields rose 9 bps to 4.08 percent. The designation of a new premier looked to have broken two months of political deadlock but there are concerns that the differences within a probable future coalition will make it hard to implement growth-boosting, deficit-cutting reforms. VULNERABLE BUNDS German Bund futures, which have also recently benefited from rate cut bets, were vulnerable to a correction, analysts said. "Most of this rate excitement and the expectation for a 25 basis points' lower refinancing rate should be in the price by now," said Rainer Guntermann, strategist at Commerzbank. "Here the market needs further bullish impetus. It may risk a corrective move from here but very short term, maybe just for today." Higher-than-expected British gross domestic product numbers also gave investors an excuse to cash in on earlier price gains. Bunds were last up 2 ticks on the day at 146.21, having dipped in and out of negative territory in early trade. Patrick Jacq, rate strategist at BNP Paribas, said German debt was too expensive at current levels and there was room for 10-year yields to rise to 1.30 percent from 1.23 percent currently. "At the moment I am relatively short of the Bund," Jacq said. The June contract hit a high this week. - Tweet this
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