EURO GOVT-Bunds stabilise before U.S. jobs data

Fri Mar 8, 2013 4:42am EST

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By Emelia Sithole-Matarise

LONDON, March 8 (Reuters) - German Bund futures held steady on Friday with some traders saying a selloff the previous day seemed overdone and was prompting some covering of short positions before U.S. jobs data.

Bund futures fell almost half a percentage point on Thursday after European Central Bank President Mario Draghi gave no clear hints on fresh monetary easing, wrongfooting those in the market who had expected a strong signal on interest rate cuts.

"I don't think Draghi said anything different to what he said in February so nothing significantly changed in the message, but the market may have played to the short side and is now edging up," a trader said.

"But I don't think the market is going to move too far away either way from here before the payrolls report. We may go 15 ticks up but not much more."

Bund futures were last flat at 142.83 with the German 10-year yield also unchanged from late Thursday at 1.49 percent.

Bunds outperformed U.S. Treasuries, expanding their 10-year yield gap to its widest since early 2011 at around 52 basis points, as appetite for U.S. debt cooled on signs of recovery in the world's biggest economy.

Bunds' losses on Thursday were exacerbated by a sharp retreat in Treasuries after U.S. data showed fewer-than-expected people made weekly jobless claims, adding to signs of a strengthening labour market in the world's biggest economy.

The government's closely watched labour market report is expected to show U.S. employers added 160,000 jobs to their payrolls last month, picking up slightly from January's 157,000 count, according to a Reuters survey of economists.

"We saw yesterday after the initial claims in the U.S. and Draghi's comments that not only Bunds but also Treasuries were under downward pressure so maybe there's already some positioning for a strong payrolls number," said Piet Lammens, a strategist at KBC.

"Maybe the payrolls will have to be stronger than consensus to have a substantial negative impact on the market... We have as a rule of thumb that it would have to be 50,000 out of the consensus to have a big impact," he said.

Among lower-rated euro zone bonds, Italian and Spanish bond yields were slightly lower in the afterglow of strong demand at a debt sale by Madrid on Thursday despite political uncertainty in Rome after last week's inconclusive elections.

Italian 10-year by yields were last 2 bps down at 4.59 percent, flirting with pre-election levels as the ECB's bond-buying backstop offset concerns for now about potential prolonged political morass in the country.

Spanish equivalents were down by a similar amount at 4.08 percent.

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