German Bund rally pauses before flood of U.S. data

Mon Oct 21, 2013 6:54am EDT

Related Topics

* Bund futures stable after one-point gains in past two days

* Investors brace for flood of U.S. data, including payrolls

* Potential Fed tapering delay supporting Bunds

By Marius Zaharia

LONDON, Oct 21 (Reuters) - German Bunds held on to last week's gains on Monday as investors braced for a flood of U.S. economic data releases in the wake a likely growth-stifling government shutdown.

The U.S. government reopened last week following a two-week shutdown, after lawmakers reached a deal to raise the government's borrowing limit and push back the threat of a default. Analysts say the shutdown was long enough to hurt business and consumer confidence and weigh on growth.

With the government back up and running, the market is now waiting for the release of a series of September economic data, which had been delayed.

The main focus will be on Tuesday's release of the September non-farm payrolls figure, a report initially scheduled for Oct. 4. Monday sees the release of housing market data.

Some in the market are expecting even the September data to show the economy recovering more slowly than anticipated earlier this year. But even if the numbers are better than forecast, expectations of poor October indicators will linger.

"We're stuck in a tight range now anticipating the data," said Michael Leister, rate strategist at Commerzbank. "It's tricky ... because (the data) reflects the pre-shutdown period so at least the downside for Bunds is protected."

Bund futures were 1 tick lower at 140.04, having risen more than a point since the U.S. debt deal late on Wednesday. Cash 10-year German yields were flat at 1.84 percent.

"The market reaction to the data will be asymmetrical. Weak payrolls would suggest the U.S. economy slowed down even before the shutdown. If we get a strong number, markets will look through it," said Richard McGuire, senior rate strategist at Rabobank.

The last-minute U.S. deal only funds the government until Jan. 15, raising worries there could be a new round of growth-capping political brinkmanship at the turn of the year.

McGuire added that expectations the Fed could delay its plans to reduce monetary stimulus were supportive for both safe-haven and risky assets.

Lower-rated euro zone debt was little changed on Monday.

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