EURO GOVT-German Bunds rise as U.S. budget deal deadline nears

Thu Dec 27, 2012 11:27am EST

Related Topics

* Bunds rise as U.S. budget deal remains elusive
    * Latest "fiscal cliff" comments unsettle markets
    * Italian yields rise before debt sale


    By Ana Nicolaci da Costa and Marius Zaharia
    LONDON, Dec 27 (Reuters) - German bonds rose on Thursday in
thin trading as doubts grew about U.S. lawmakers' last-minute
attempts to avoid major fiscal tightening early next year.
    The United States could face about $600 billion of tax hikes
and spending cuts in 2013 if Democrats and Republicans fail to
find common ground in budget negotiations, potentially sending
the world's biggest economy back into recession.
    President Barack Obama was flying back to Washington on
Thursday and the top Republican in Congress planned to speak
with House of Representatives lawmakers as the year-end deadline
drew nearer. 
    But Senate leader Harry Reid said it looked like the U.S.
economy was headed towards the fiscal cliff, sending safe-haven
debt higher and riskier stocks lower. 
    "It doesn't look good. We hope now with Obama coming back to
DC that he can try to break the impasse which is still
lingering," David Keeble, global head of fixed income strategy,
at Credit Agricole said.
    German Bund futures rose 67 ticks to 145.45, having
triggered stops above the 144.99 level, according to one trader.
    "Safe-haven assets (such as Bunds) should remain supported
as long as the fiscal cliff debate remains unsolved,"
Commerzbank rate strategist Rainer Guntermann said.
    Data showing U.S. consumer confidence fell to a four-month
low in December also lent support to safe-haven debt, but
traders cautioned against reading too much into exaggerated
price moves in thin liquidity, between the Christmas holidays
and the end of the year..
    "Flows-wise, we have seen not much at all," a second trader
said.
    
    ITALIAN AUCTION
    Attention turned to an Italian auction on Friday, when Rome
will offer up to 6 billion euros of five- and 10-year bonds in
its last auction of the year.
    In the secondary market, Italian 10-year yields
 were 4.2 basis points higher at 4.53 percent as
some investors sold the paper to make room for the supply.
Five-year yields were up 5.8 bps to 3.25 percent.
   "We have seen a little bit of a concession today on the
Italian curve, so I think it should actually go fairly okay even
though the (market) conditions are a little bit difficult,"
Keeble added.
    Heavy redemptions helped Rome sell all the bills and bonds
it aimed to at a sale on Thursday. 
    Investors are keeping a close watch on political
developments in Italy as it prepares for an election early next
year.
    Outgoing technocrat Prime Minister Mario Monti - a figure
investors felt comfortable with - has said he would consider
seeking a second term as Italian prime minister if approached by
allies committed to backing his austere brand of reforms. 
    "The market has already priced in more (turmoil) with
regards to elections. It is in a balanced state of uncertainty
at the moment," Commerzbank's Guntermann said.
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