German Bund yields stabilise after Fed-induced plunge
LONDON, Sept 20
LONDON, Sept 20 (Reuters) - German Bunds stabilised on Friday, taking a breather after a sharp readjustment of investor positions following the U.S. Federal Reserve's surprise move to postpone the withdrawal of monetary stimulus.
The Fed's decision not to trim its $85 billion a month bond-buying programme lifted all euro zone bonds on Thursday, but caution has set in as uncertainty remains high over the U.S. central bank's outlook.
Ten-year German Bund yields were little changed at 1.88 percent, having hit one-month lows of 1.812 percent on Thursday. That compares with 1-1/2 year highs of 2.059 percent hit earlier this month when Fed tapering expectations dominated any other theme in the market.
"We've seen sellers all day yesterday and then people just taking profits so we'll see if that continues," one trader said.
"I suppose December is the market view (for the Fed starting to trim stimulus), but we'll look at every piece of data between now and then and take it from there, although the Fed have made themselves pretty hard to read."
Bund futures rose 17 ticks to 138.73.
Some of the attention has shifted towards the German election on Sunday. Chancellor Angela Merkel's centre-right coalition held a narrow lead over the combined left-leaning opposition parties, a Thursday poll showed.
The two possible outcomes markets are considering are a Merkel win which would mean a continuation of the status quo and a grand coalition of Merkel's allies and the Social Democrats.
While the latter is seen as a potentially better outcome for the troubled peripheral countries in the currency bloc and a drag for safe-haven Bunds as the Social Democrats are seen more open to European integration, near-term the market sees little impact from the vote outcome.
"It doesn't matter near term because neither of the governments would push for further European integration (in the beginning)," Rabobank rate strategist Richard McGuire said.
"The crisis needs to get worse before it gets better. It will be market pressure that will lead to a decision to share liabilities. The difference is only how far the tensions would have to rise in either of the two scenarios for that to happen."
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