Euro debt-Yields up after German survey, before Greenspan
By George Matlock
LONDON, July 20 (Reuters) - Euro zone government bond yields rose on Tuesday after news of improving German investor sentiment and as caution crept into the market before Federal Reserve Chairman Alan Greenspan's semi-annual report on monetary policy.
The Germany ZEW institute's gauge of investor confidence rose unexpectedly in July, with the expectations indicator for Germany rising by one point to 48.4 from 47.4 in June.
This put some upward pressure on bond yields but the key market focus remained Greenspan, who testifies before the Senate Banking, Housing and Urban Affairs Committee at 1830 GMT.
"We have had a small impact from the ZEW survey. Sentiment towards Germany is starting to change and this is reflected in the survey," said Tobias Hartmann, fixed income strategist at Commerzbank.
"Greenspan is the main focus. He won't have any interest in building up a bond bubble, so he will deliver an upbeat speech that is likely to be negative for the market."
At 1603 GMT, the interest rate sensitive two-year Schatz yield <EU2YT=RR> was up 1.6 basis points (bps) at 2.576 percent.
The benchmark 10-year Bund yield <EU10YT=RR> was 1.9 bps higher at 4.211 percent. On Monday, the yield touched a more than two-month low of 4.186 percent.
The Fed lifted interest rates a quarter point to 1.25 percent on June 30 and pledged to hike rates at a measured pace. Most analysts expected Greenspan to reiterate this promise in his testimony.
"It is all about Greenspan today," said Charles Berry, trader at LLBW in Stuttgart. "If we take all the economic figures into account, Greenspan would have to say something good for the bond market, but you never know."
The September Bund future <FGBLU4> fell 16 ticks to 114.20.
Bund futures were pressured at midsession as European bourses <.STOXX50E> bounced back from earlier two-month lows and the euro <EUR=> softened against the dollar.
But trading volumes were thin, exaggerating price moves and the market was in a cautious mood before Greenspan's testimony to Congress.
"The euro is down and stocks are coming back nicely so this has pushed the market lower," said one London euro debt trader. "But there is not much going on and everyone is waiting for Greenspan tonight."
The euro <EUR=> meanwhile moved further away from the previous session's multi-month highs against the dollar. A weakening in the single currency often undermines euro-denominated debt.
The September Euribor <FEIU4> futures contract, a market barometer of euro zone rate expectations, was steady at 97.845, implying three-month money rates at around 2.16 percent.
The European Central Bank's key rate is at 2.0 percent.
Trading volumes remained low. Dealers said this was partly due to a summer lull but added that a lack of a clear trend in global debt markets meant many investors were staying away.
"The main problem at the moment is that there is no clear trend and we are caught in a range between 112 and 115 (on the Bund future)," said Berry. "There is a lot of money out there but people want to wait for a trend."
Bunds outperformed Treasuries, with the 10-year yield gap widening one basis point so that T-Notes yielded 22 basis points more than German debt. The 10-year euro swap spread was steady at 12 basis points.
