German Bunds stabilise after U.S.-fuelled hefty gains
LONDON Oct 18 (Reuters) - German Bunds were steady on Friday, holding on to hefty gains made in the previous session on the back of a stop-gap U.S. debt deal that is seen hurting longer-term growth prospects for the world's largest economy.
Data showing an acceleration in China's growth failed to lift market sentiment enough to significantly weigh on safe-haven Bunds, whose outlook has been improved by policy uncertainty across the Atlantic.
The last-minute deal to lift the U.S. debt ceiling and fund the government until Jan. 15 raised worries a new round of political brinkmanship could start at the turn of the year, weighing on consumer and business sentiment.
The likely negative impact this would have on the economy could also delay the Federal Reserve's plans to reduce bond-buying stimulus, giving an extra boost to Bunds, which tend to closely track moves by their top-rated U.S. peers.
Bund futures were last 4 ticks lower on the day at 139.64, having gained 75 ticks on Thursday. Ten-year cash yields were flat at 1.87 percent.
The debt deal re-opened the U.S. government, which had been shut for more than two weeks. The release of economic indicators, including the key payrolls data, will thus resume next week. Many players are downbeat on what they will say about the state of the economy.
"If we get strong numbers the market will shrug them off because they are from before the shutdown. If they're weak, it means the labour market may have been losing momentum even before October," said Jan von Gerich, chief analyst at Nordea.
"If anything, they will support (German and U.S.) bonds," he said, adding he did not expect the Fed to "seriously consider to taper until at least early next year."
Friday's pause in Bund gains was attributed to technical reasons, rather than fundamental ones.
U.S. 10-year T-note yields matched the month's lows around 2.58 percent on Thursday, with the level expected now to act as near-term support for yields on the charts and with Bunds likely mirroring the move, according to KBC strategist Piet Lammens.
Other euro zone bonds were broadly steady, with Italian and Spanish debt slightly firmer.
"Tapering (of Fed bond buying) is off the radar ... that's a good climate for the periphery," Lammens said.
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