* Bund reverse early losses, impact of U.S. QE uncertain
* Italian, Spanish auctions seen going smoothly
* Bonds rally before debt auctions, Italy concerns ease
By William James
LONDON, Dec 13 German Bund futures rose in
choppy trading on Friday as investors struggled to assess the
long-term impact of the U.S. Federal Reserve's decision to buy
more Treasuries in a bid to stimulate the economy.
At the same time, bonds issued by Italy and Spain further
recovered losses made early in the week as concerns eased that
the resignation plan of Prime Minister Mario Monti would weaken
Italy's resolve to reform.
German bonds fell at the open before recovering to leave
futures 12 ticks higher on the day at 145.38.
The Fed said on Wednesday that it would buy $45 billion in
Treasuries each month alongside an existing pledge to
purchase$40 billion of mortgage-backed securities and would
expand its purchases to include five-year notes.
"It's quite thin volumes out there. It's hard to read
because you can say more quantitative easing is a good thing for
the U.S. economy and maybe we should be risk-on," said Rabobank
strategist Lyn Graham-Taylor.
"But you can read it the other way too, that the economy is
still struggling and it's a risk-off trade. I don't think the
market has made up its mind particularly yet."
The additional Fed buying had been widely expected and
priced in to markets, as indicated by the subdued reaction in
equities. European stocks were slightly lower on the
day after rallying for three weeks, with analysts citing concern
over the still unresolved "fiscal cliff" in the United States.
Focus moved to debt sales from Italy and Spain due later in
the day. Both were expected to find demand but the strength of
bidding will be closely watched for clues on how willing
investors will be to support the debt-laden sovereigns in 2013.
Italian bond yields were 5 basis points lower
on the day at 4.61 percent while equivalent Spanish yields
fell 6 bps to 5.34 percent.
The fall in yields further unwound a rise seen on Monday
after Monti said he would resign once the 2013 budget had been
passed, bringing forward an expected election by some six weeks.
"Monti said he would not resign until he had done what he
needed to do, so for the (Italian bond) market it's not actually
that bad," said Patrick Jacq, strategist at BNP Paribas in
"There is still limited potential for this market to rally
but nothing as huge as we've seen in the past few days."