German government bond prices pushed higher on Tuesday .
Investors are being lured back into the market after the amount of interest Berlin is offering on ten year bonds recently rose above two percent.
By contrast, for the equivalent Spanish bonds Madrid is having to offer interest of 5.22 percent after ratings agency Moody’s said Spain’s economic outlook remained challenging despite recently softened deficit targets.
Peripheral states such as Spain and Italy, where Prime Minister Mario Monti was meeting unions over labour reform, remain vulnerable to fiscal slippage, making investors cautious over the durability of the Bund rally.
“We’re seeing a bit of a bounce off last week’s sell-off but I don’t think it’s going to be very pronounced. I wouldn’t recommend investors chase this rally,” said RIA Capital Markets strategist Nick Stamenkovic.
“Whilst the Bank of England, the Fed and ECB are not going to raise rates any time soon the chances are that any further monetary accommodation starts to lessen and one of the key supports for core government bonds starts to fade and yields will start to move modestly higher over the next few weeks.”
He saw the German 10-year yield testing 2.20 percent over the next month.
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