Bund futures slipped on Wednesday as Greece appeared to be nearing a political consensus on painful budget cuts, easing demand for low-risk German government debt, but any fresh delays could provide renewed support.
The Bund future fell 37 ticks to 138.15, with traders citing a pledge from the Greek conservative party leader to deliver a letter of commitment to the country's international lenders, required for the approval of a badly-needed bailout.
"This meets one of the conditions, so it's a small positive for today but things continue to rumble on. It still seems the Greek guys are not wholly on board with these plans,» a trader said.
Greece's efforts to detail the budget cuts required by lenders in order to give Athens the cash it needs to avoid a default have driven volatile price action in recent sessions, leaving traders wary of fresh delays that would see a return to safe-havens.
"We expect the market to scale back at least some of its rather complacent attitude towards the still rather small but growing risk about a Greek 'accident', as doubts about a smooth implementation of a number of time-sensitive events are likely to increase,» Commerzbank strategists said in a note.
The bank recommended a short-term long position for the Bund future, targeting the Jan. 31 high of 139.89, with a stop loss at 137.89.
Euro zone approval for the bailout deal had been anticipated at a meeting of finance ministers on Wednesday. But, after the meeting was downgraded to a conference call due to a lack of commitments on reform from Greek political leaders, that prospect looked remote.
Portugal is due to sell short-term debt later in the session ahead of heavy bond supply in France and Spain on Thursday which may put pressure on both countries' bonds as dealers look to make room for the new supply.