German Bunds dip before two-day Fed meeting
LONDON, Sept 17
LONDON, Sept 17 (Reuters) - German Bunds edged lower on Tuesday ahead of a two-day Federal Reserve meeting expected to launch the process of reining in U.S. monetary stimulus.
Bund futures rose half-a-point on Monday after Lawrence Summers withdrew from the race to head the Fed. The other leading candidate, Fed deputy chief Janet Yellen is seen by markets as less likely to scale bond purchases back quickly.
On Tuesday, the December Bund future contract fell 8 ticks on the day to 138.42, while cash 10-year German yields rose 1 basis point to 1.888 percent.
"This is more of a stabilisation than a sell-off. We had some strong moves yesterday and there is no room for ample movement before the (Fed) meeting," BNP Paribas rate strategist Patrick Jacq said.
He added that any surprise in the German ZEW business sentiment survey later in the day "could make some noise", but any reaction would be "limited and short-lived."
Reuters' latest polling of analysts has predicted the Federal Reserve will cut back its $85 billion monthly asset purchases by $10 billion on Wednesday, less than the $15 billion cut foreseen in an August survey.
Bar any knee-jerk reaction immediately after the meeting, traders said global bond yields are likely to keep rising as the move marks the beginning of the end for the ultra-easy monetary policy employed by many central banks since 2008.
"The market is fairly short Bunds, (U.S.) Treasuries and (UK) gilts going into the meeting, but positioning is not excessive," one trader said. "The only thing that will make the market rally will be no tapering at all."
Other euro zone debt markets were also little changed at the opening. Portuguese bonds looked somewhat more stable after taking a hammering last week due to concerns over Lisbon's relationship with its international creditors.
The head of the Eurogroup of finance ministers, Jeroen Dijsselbloem, has rejected Portuguese calls for a softening of the fiscal targets in its bailout deal. A mission of the European Union and the International Monetary Fund is in Lisbon reviewing its progress in meeting the terms of their loans.
"They will probably say at the end that Portugal has been making efforts in implementing reforms, but further steps are required ... I don't think Portuguese bonds are going to recover too much in the near term," BNP Paribas's Jacq said.
Ten-year Portuguese yields were up 2 bps at 7.33 percent, about a full point higher than a month ago.