German Bunds inch up as central banks keep soft tone
LONDON, Sept 25
LONDON, Sept 25 (Reuters) - German government bonds inched higher on Wednesday, adding to recent gains on the back of reassurances from central banks that policy will remain accommodative.
A below-forecast Ifo business sentiment survey on Tuesday raised the risk that markets may have priced in a faster economic recovery than they should have - a positive for prices of top-rated bonds.
Data on Wednesday showed German consumer sentiment hit six year highs, in line with expectations, but French industry morale fell and undershot forecasts.
European Central Bank policymakers including President Mario Draghi said earlier this week it was too early to end crisis measures and unconventional tools such as new long-term loans to banks remained a possibility going forward.
"The central banks are guiding us through," one trader said.
Bund futures were 13 ticks up on the day at 139.67, about two-and-a-half points higher than the lows hit before the U.S. Federal Reserve surprised markets by not trimming asset purchases last week.
Ten-year cash German yields fell 1 basis point to 1.79 percent.
Traders said concerns about a possible U.S. government shutdown limited room for any fall in Bunds, still a safe-haven for investors in times of political and fiscal nerves.
Congressional authorisation for the government to spend money runs out on Sept. 30. U.S. politicians are engaged in serious discussions to pass a resolution to keep the government running, but have not yet found common ground.
"So far there is little evidence of stress ... (but) it can be a key market driver at some point," BNP Paribas rate strategist Patrick Jacq said.
"We've already had this sort of problems several times in the past. The market is used to that, but probably it's a mistake because at some point we might have a government shutdown."
He expected Bunds to remain data-dependent in the near-term.
Other euro zone bonds were broadly steady.
Italy will offer up to 3.25 billion euros of bonds linked to euro zone inflation and zero-coupon paper on Wednesday, before selling up to 6 billion euros of conventional bonds on Friday.
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