German yields poised for biggest weekly rise since June
By Ana Nicolaci da Costa and Spriha Srivastava
LONDON Aug 16 (Reuters) - Benchmark German bonds yields were poised for their biggest weekly rise since June on Friday as recent data fueled optimism about the global economy.
Ten-year German yields stabilized after hitting their highest since March 2012 on Thursday when better euro zone and U.S. numbers prompted investors to dump safe-haven assets.
Investors will look at August manufacturing data next week for confirmation the euro zone recovery has continued into the second half of the year. With little market-moving releases on the agenda this session, technical levels may also be a driver.
Markets will keep an eye on housing and sentiment data out of the United States to see whether it reinforces a brighter picture for the world's largest economy.
"We do now get this consistent picture of rising Bund yields and ... falling spreads for the peripheral countries. It seems to be that macro is the key driver for all these dynamics," Rainer Guntermann, strategist at Commerzbank, said. "In the very near term, it's difficult to see that this will come to an end."
Ten-year German government bond yields fell 1 basis point to 1.87 percent. They rose as far as 1.906 percent on Thursday as equivalent U.S. bond yields hit two-year highs.
Data showing U.S. jobless claims had dropped to a near six-year low reinforced views that the Fed could slow bond purchases as soon as next month, pushing up yields.
Guntermann said 10-year German yields had taken out a key technical level at 1.85 percent and could see further upside.
"This bearish momentum can continue a little while and we wouldn't be surprised to see Bund yields edging up a bit further above 1.90 and probably even flirting with 2 percent in the course of the next few days," he added.
German Bund futures were 13 ticks higher at 140.24, having fallen sharply on Thursday.
Helaba Landesbank Hessen-Thuringen said the technical picture remained negative. If the Bund falls below 139.90, it could reach the October low of 139.45 and the September low of 138.41, it said.
But others said the scope for more Bund selling was limited.
"It's probably not going to be a big rally but I think we can stabilize here. The front-end has been under quite a bit of pressure... I think it can't just continue," Peter Schaffrik, head of European rates strategy at RBC Capital Markets said.
The premium investors demand to hold Spanish and Italian debt versus German Bunds traded around their lowest in two years, as peripheral debt outperformed their safe-haven counterparts.
The 10-year yield gap between Spanish and German bonds narrowed 5 bps to 252 bps - its lowest since July 2011 - while the Italian equivalent was 2 basis points tighter at 235 bps.
Brighter economic prospects favor riskier assets while the countries are also enjoyed comfortable funding positions given the dearth of supply in August.
"(A) clearly stronger economy should help peripherals going forward in terms of prospects and meeting budgetary targets," Alan McQuaid at Merrion Stockbrokers said.
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