Bunds open higher after Spain rating downgrade

Bund futures opened higher on Monday, with demand for benchmark German paper underpinned by renewed worries about fringe euro zone debt after Fitch cut Spain's credit rating by one notch to AA-plus late on Friday. Fitch linked the downgrade to the record levels of household and corporate debt in Spain, as well as mounting public debt, which it said would act as a drag on economic growth.

Monday's trading is expected to be subdued with UK and U.S. financial markets shut for holidays. WestLB analysts said euro zone data on Monday should also be broadly supportive for Bunds as they are expected to show the availability of credit remained tight in April and that the rebound in economic sentiment lost momentum in May.
At 0707 GMT, June Bund futures <FGBLc1> were up 9 ticks at 128.59, having opened at 128.61. The two-year Schatz yield
<EU2YT=RR> and 10-year Bund yield <EU10YT=RR> both eased slightly to 0.50 percent and 2.672 percent respectively.
The 10-year Spanish/German bond yield spread <ES10YT=RR> <EU10YT=RR> [ID:nLDE64R25A] was last indicated at 159 basis points, up around 3 bps from Friday's settlement close.