German Bunds plunge on improving U.S. economic outlook
By Marius Zaharia
LONDON Dec 27 (Reuters) - German Bunds fell on Friday as further signs of improvement in the U.S. economic outlook reinforced expectations that the Federal Reserve will steadily withdraw its bond-buying stimulus next year.
Data on Thursday showed a fall in U.S. jobless claims and a rise in holiday retail sales, prompting more weakness in Bunds and Treasuries, which have been under selling pressure since the Fed said last week it will start trimming stimulus in January.
Bund futures were last 53 ticks lower at 139.22. In the United States, 10-year T-note yields were flat at just below 3 percent, having risen more than half a percentage point in the past two months.
"Bonds are not particularly popular at the moment, especially in the U.S.," one trader said. He expected low volumes due to the year-end holidays.
The 3 percent level in U.S. T-note yields was last hit in September on anticipation that the Fed could start trimming asset purchases. Prior to that, the level was last reached back in mid-2011 just before the euro zone crisis escalated, prompting investors to buy assets perceived as safe havens, such as Treasuries and Bunds.
With the euro zone crisis abating and the U.S. recovery seemingly gathering speed, some analysts predict U.S. yields will rise further next year.
"In the U.S. I think yields could continue to grind higher, especially if data continues to improve," said Anders Svendsen, chief analyst at Nordea.
"But there's a huge difference between the U.S. and the euro zone. In the euro zone we need more confirmation that the recovery is on track before we see Bund yields significantly above 2 percent."
Svendsen also said the European Central Bank will attempt to support the economic recovery by being "extremely dovish" in a bid to decouple euro zone yields from their U.S. peers.
Italian 10-year yields were 5 basis points higher at 4.23 percent as investors made room in their books for the last debt sales of the year.
Italy will offer 8 billion euros of Treasury bills and up to 3 billion euros of zero-coupon bonds (CTZs) at its regular end-month auction on Dec. 27. On Monday it will offer up to 5.5 billion euros of five- and 10-year bonds.
- Still no sign of Malaysian jet lost in 'unprecedented mystery' |
- The search for missing Malaysian jet
- Mexico kills drug kingpin reported dead years ago: official
- Missing Malaysian jet may have disintegrated in mid-air: source |
- Exclusive: Malaysia plane probe narrows on mid-air disintegration - source