LONDON, Jan 2 (Reuters) - German Bunds fell on Wednesday after U.S. lawmakers approved a deal preventing massive tax hikes and spending cuts that would have dragged the world's largest economy into recession.
The Republican-controlled House of Representatives approved a bill that will raise taxes on top U.S. earners, fulfilling President Barack Obama's re-election pledge and avoiding a 'fiscal cliff' of $600 billion in broad-based tax hikes and spending cuts.
"The compromise is supportive for risk sentiment as we've seen in a few markets already and it should weigh on Bunds which should correct in line with Treasuries. Treasuries could even underperform," said Rainer Guntermann, a strategist at Commerzbank.
"But we also have the follow-up debate on the (U.S.) debt ceiling which we are bumping into in February and this will be another debate for the next few weeks which could possibly be supportive for Bunds but for now Bunds are set to correct a bit lower from their run over the festive season."
The Bund future was last 89 ticks down at 144.75 compared with 145.64 at Monday's close. European markets were shut for New Year's Day on Tuesday.