CORRECTED-EURO GOVT-Upbeat U.S. data send German Bunds to one-month low

Fri May 10, 2013 6:16am EDT

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(Corrects last name of strategist in final paragraph)

* Bund future falls to lowest since April 11

* Italy, Spanish bonds steady, fresh debt sales eyed

* Expectations of Japanese buying support periphery

By Emelia Sithole-Matarise

LONDON, May 10 (Reuters) - German Bunds hit a one-month low on Friday, tracking U.S. Treasuries as the dollar's sharp rise against the yen spurred selling of U.S. debt already weighed down after weekly jobs data on Thursday.

Demand for safe-haven bonds has been undermined over the week by better-than-forecast data in the United States and in Germany but traders said the selloff in Bunds was likely to fizzle out in coming days on bets on more monetary easing by the European Central Bank after it cut interest rates last week.

Bund futures fell as much 83 ticks on the day to 145.06 with the slide gaining momentum after a break below the week's low of 145.37, which traders said had provided support.

"Bunds are selling off with U.S. Treasuries after the better jobless claims data and the rise in dollar/yen which wrong-footed some people," a trader said.

"But I think we might see some buyers coming in especially in five-year (German bonds) which are approaching levels which have attracted buyers this week."

German five-year yields were up 5 basis points at 0.38 percent while 10-year Bund yields were 6 bps higher at 1.33 percent.

The 10-year yield gap between Bunds and Treasuries was steady on the day around 54 bps after the benchmark U.S. yield rose to its highest since early April, around 1.862 percent as the dollar hit a four-year high of 101.40 yen.

Traders said the currency moves had prompted selling of Treasuries by investors who need to hedge some structured deals.

Among lower-rated euro zone bonds, Spanish 10-year yields rose 4 bps to 4.24 percent on speculation Spain planned to issue more debt via syndication in the coming week after a well-received sale on Thursday.

Some traders were nervous the market could find it hard to digest such a flood of new debt in so short a time.

Italy also plans to issue up to 8 billion euros in conventional and floating rate paper on Monday. Analysts said that while traders might sell to make way for the auction, underlying demand for higher-yielding euro zone debt supported by the prospect of loose monetary policy should persist.

"The hunt for returns is still very much intact and the very low yields in core bonds is still driving investors to peripherals so I still expect Italian and Spanish spreads to tighten against Bunds," said Alessandro Giansanti, a strategist at ING in Amsterdam. (Editing by Nigel Stephenson)

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