Bunds open higher after Greek downgrade

German government bonds opened higher on Tuesday after Moody's investors service cut Greece's credit rating to junk late the previous day, refocusing market attention on Europe's debt problems. Moody's downgraded Greece four notches to Ba1, citing risks in the euro zone/IMF rescue package for the debt-stricken country. It was the second agency to strip Athens of its investment grade rating after Standard and Poor's made a similar move in April.

The downgrade was expected to prompt equity investors to book profits after a brisk four-session winning run, sending regional shares lower.

"This puts the focus back on the periphery. There are going to be people who are forced sellers now with two junk ratings," said a trader.

"The ECB are the only bidder so we would expect them to be quite active today, but the worry now is the contagion into other peripherals and the question being asked is who will be next to be downgraded."

At 0604 GMT, September Bund futures <FGBLU0> were at 128.95, 42 ticks higher from Monday's settlement, although little changed from levels seen in after-hours trading. Two-year bond yields <DE2YT=TWEB> were 1.2 basis points lower at 0.488 percent, with 10-year yields <DE10YT=TWEB> almost 3 basis points lower at 2.60 percent.

With peripheral bonds likely to be under pressure, Ireland will auction up to 1.5 billion euros of 2016 and 2018 government bonds.

Ahead of that, the German ZEW sentiment indicator for June, released at 0900 GMT, is seen slipping to 42.0 versus 45.8 previously.