* Bunds stabilise after big sell-off on U.S. fiscal deal
* Fresh U.S. bigger budget debates loom in coming weeks
* Major rise in Bund yields unlikely near term
By Marius Zaharia
LONDON, Jan 3 German Bunds steadied on Thursday,
with the impact of a deal to avert large-scale fiscal tightening
in the United States fading as politicians there braced for
bigger budget battles in coming weeks.
President Barack Obama signed a deal on Wednesday to stave
off some $600 billion in automatic tax rises and spending cuts.
But Republican lawmakers, angry the deal did little to curb the
federal deficit, said they would use a debate over raising the
government borrowing limit to win deep spending cuts.
Failure to raise the borrowing limit could lead to a U.S.
The deal to avoid the so-called fiscal cliff, which could
have sent the U.S. back into recession triggered a selloff in
safe-haven assets, including Bunds, on Wednesday, but many
market participants believe the move went too far.
"There is still a lot of work to be done. What happened was
not a final solution," one trader said. "The 1.45 percent level
in (Bund) yields is one where it feels OK to be buying."
Ten-year German cash yields fell 0.3 basis
points on the day to 1.436 percent. For the past two months,
they have failed to break above the 1.45-1.46 percent area,
despite several attempts.
Bund futures were last four ticks lower at 144.03,
after falling by around a point and a half on Wednesday.
Analysts said an improvement in the global economic outlook
or fresh evidence the euro zone debt crisis can be contained was
needed for Bund yields to move higher.
On the euro zone front, Spain is expected in 2013 to
request financial assistance, a move which could activate the
European Central Bank's bond-buying programme (OMT) and test its
potency as an anti-crisis tool.
"One pre-requisite for Bund yields to start moving up is
that we have a further transfer of risk in the euro area. That
de facto takes place when a country like Spain seeks help and
enables the OMT," Rabobank rate strategist Elwin de Groot said.
Commerzbank strategists recommended investors buy Bunds on
Thursday, replacing the "sell" call of the previous session.
Rate strategists at Lloyds said Wednesday's sell-off offers an
opportunity to buy Bunds.
Technical strategists also said further losses in Bund
futures seemed unlikely in the near-term.
"The support line is at 143.90 in the weekly chart of the
March contract. Moreover, the notable low from Dec. 19 is
located at 143.80. Unless this area is undershot, it is too soon
to bet on further major losses," Helaba Landesbank
Hessen-Thueringen strategists said in a note.
In the lower-rated euro zone countries, high-yielding
Spanish and Italian bonds weakened slightly after a rally on
Wednesday. Spanish 10-year yields rose 2 bps to
5.07 percent, while equivalent Italian yields were
5 bps higher at 4.33 percent.