German yields rise after Obama holds off on Syria
LONDON, Sept 2
LONDON, Sept 2 (Reuters) - German bond yields rose on Monday as stock markets drew comfort from President Barack Obama's move to delay U.S. military action against Syria to consult Congress.
Obama's announcement on Saturday that he would seek congressional authorisation is likely to delay for at least nine days a strike that had driven investors to seek the perceived security of top-rated government debt like Bunds.
Stock markets also benefited from data showing China's manufacturing sector grew in August for the first time in four months.
"Any risk of strikes from some Western countries on Syria has decreased at least near-term," Patrick Jacq, European rate strategist at BNP Paribas said.
"The risk premium linked to geopolitical events has decreased, so risk appetite probably is resuming somewhat."
Ten-year German bond yields rose 6.3 basis points to 1.92 percent, not far from 1-1/2 year highs of 1.98 percent hit in August.
German Bund futures fell 72 ticks to 139.94 in what traders expected to be a quiet session due to the U.S. Labor Day holiday. They posted their biggest weekly gain since mid-July last week.
"Syria is not on the agenda, so I think that's why we are down... there is nothing imminent there," one trader said.
Analysts also said investors could be positioning for the European Central Bank's monetary policy meeting this week, where President Mario Draghi will have to balance the recent improvement in economic data with a rise in market yields which some worry could blunt the recovery.
"I expect the ECB will not shut the door (to lower rates) but clearly we could ... hear that the ECB is less concerned about the economic backdrop," Jacq added.
The latest insight into the economy will come from euro zone manufacturing data for August released later in the day.
Lower-rated bonds, however, failed to benefit from the improved risk sentiment. Ten-year Spanish government bond yields were 2.3 bps higher at 4.56 percent and equivalent Italian yields were 3.3 bps higher at 4.42 percent.
Ten-year Portuguese yields were 1.1 bps higher at 6.83 percent, having risen sharply on Friday after its constitutional court rejected a labor bill and dealt a blow to the austerity programme set out under Lisbon's bailout.
"There is an awful lot of event risk ahead - we have got the Federal Reserve (meeting), we have got the German election, we have got Spanish supply so I think, against that backdrop, it's going to be difficult for periphery to make much headway in the near-term," Nick Stamenkovic, bond strategist at RIA Capital Markets said.
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