* U.S. private sector adds more jobs than forecast
* Safe-haven bonds extend falls as U.S. payrolls eyed
* Major rise in Bund yields unlikely; U.S. budget talks loom
By Emelia Sithole-Matarise
LONDON, Jan 3 German Bund yields rose close to a
one-month high on Thursday after data showed the U.S. private
sector added more jobs than expected in December, cooling demand
for low-risk debt.
Yields could rise further if the U.S. non-farm payrolls
report due on Friday maintains this week's trend of upbeat
economic data. This could trigger an extension of Wednesday's
sell-off in safe-haven debt, which came after U.S. lawmakers
reached a deal to avert a fiscal crisis.
The ADP Employment Report showed private sector employers
added 215,000 jobs in December, well above the 133,000 forecast
by economists in a Reuters survey.
German Bunds, which had steadied earlier as investors
focused on fresh U.S. budget battles expected in coming weeks,
retreated after the figures. Ten-year yields rose 4 basis points
on the day to 1.48 percent, their highest since
"The ADP numbers are quite good though we take them with a
pinch of salt due to seasonal effects," said David Keeble,
global head of fixed income strategy at Credit Agricole.
"Most of the numbers we've had in New York, whether you look
at the ISM (manufacturing report on Wednesday) or the ADP today,
seem to be on the firm side so it is justified that we are on
the back foot for risk-free assets," he said.
The Bund future dropped half a point on the day to
settle at 143.57, bringing its cumulative fall in the past two
days to two points.
The renewed sell-off in German debt pushed 10-year Bund
yields above the 1.45-1.46 percent area which has held for the
past two months, though analysts saw little prospect of a rise
much beyond 1.5 percent.
Few investors were seen willing to abandon highly liquid and
safe-haven debt as U.S. political battles loom in coming weeks
over spending cuts and raising the country's debt ceiling.
Republican lawmakers, angry that the deal signed on
Wednesday by President Barack Obama to avoid a so-called "fiscal
cliff" did little to curb the federal deficit, have 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.
"I don't think Bunds will sell off too much as there are
still some clouds on the horizon regarding the fiscal cliff so
it's possible at 1.50 percent prices could bottom out," a trader
Analysts said an improvement in the global economic outlook
or fresh evidence the euro zone debt crisis can be contained was
also needed for Bund yields to move significantly 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.
In the lower-rated euro zone countries, Italian 10-year
yields were 3 bps lower at 4.25 percent while
equivalent Spanish yields were 1 basis point lower
at 5.04 percent.