German Bunds rise as U.S. debt deal seen weighing on growth

Fri Oct 18, 2013 8:02am EDT

Related Topics

* Bunds rise as markets reassess U.S. growth outlook

* Some analysts see Fed further delaying stimulus reduction

* Peripheral bonds seen supported by any Fed tapering delay

By Marius Zaharia

LONDON, Oct 18 (Reuters) - German Bunds rose on Friday on the view that the stop-gap U.S. debt deal may hurt the longer-term growth prospects of the world's largest economy, delaying the Federal Reserve's plans to reduce its bond-buying stimulus.

The last-minute deal to lift the U.S. debt ceiling and fund the government until Jan. 15 have led to concerns that a new round of political brinkmanship will start at the turn of the year, weighing on consumer and business sentiment.

Bund futures rose half a point to 140.28, having gained 75 ticks on Thursday. Ten-year cash German yields fell 4 basis points to 1.83 percent, moving in line with their U.S peers, which hit their lowest since August at 2.54 percent.

"The market is preparing for data showing the effects of the turmoil around the budget in the U.S. The mood is going to be bullish for Bunds in the near term," said Chiara Manenti, fixed income strategist at Intesa SanPaolo.

The U.S. will resume publishing economic data next week after a hiatus caused by the government shutdown which lasted more than two weeks. The releases will include key payrolls data for September.

Many market players expect Bund prices to rise, whatever the figures show.

"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."

Other euro zone bonds were broadly steady, but the potential delay in the withdrawal of central bank stimulus boded well for the region's lower rated debt, analysts said.

"Most people had expected the Fed to start tapering (bond buying) in December but there's a big risk there would be a further delay, especially if budget negotiations are not finalised before the December meeting" of the Fed, said Jussi Hilijanen, chief fixed income strategist at SEB.

"That will support both safe haven and risky assets."

Italian 10-year yields were flat at 4.21 percent, while their Spanish counterparts traded at 4.31 percent.

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