* German Bunds slide after U.S. Fed minutes judged hawkish
* May rebound if U.S. data dashes high expectations
* Scope for fresh falls seen limited by euro zone concerns
By William James
LONDON, Jan 4 German Bund futures dipped on
Friday, extending the week's steep decline after signs that the
U.S. Federal Reserve may be less committed to its bond-buying
stimulus plans than previously thought.
With U.S. markets continuing to drive global investor
sentiment, minutes from the Fed's latest meeting gave fresh
momentum to the sell-off in low-risk government bonds that was
sparked by U.S. policymakers' last-gasp deal to avoid
recession-inducing spending cuts and tax hikes.
Some Fed members showed growing concern about expanding the
central bank's asset purchase programme which created doubt that
ultra low yields on core government bonds, including German
debt, could be sustained.
"There's disappointment at the Fed minutes, that's the main
story... presumably they're hoping things in the economy pick up
in the second half of the year and so they don't have to do more
QE (quantitative easing)," a trader said.
Bund futures fell 50 ticks to 143.07, extending the
sell-off seen over the course of the last three sessions in
which Bunds have dropped more than two full points. U.S.
Treasuries also fell, adding to moves after Thursday's European
The Fed minutes ramped up the focus on today's U.S. non-farm
payrolls report, which may prove the trigger for further losses
if it shows the economy added more jobs than the more than the
150,000 forecast by a Reuters poll.
"The Fed has made it clear that it will keep policy loose
until unemployment drops to 6.5 percent or below, so strong jobs
data will undoubtedly raise expectations of a more hawkish Fed,"
analysts at Tradition brokerage said in a note.
However, after a better-than-expected ADP employment report
on Thursday, many were already betting on an above-consensus
payrolls report - bets which could see markets turn around
sharply if the number fell short of expectations.
"Clearly after yesterday's ADP report the market has
positioned for a strong non-farm payrolls, so now the risk is of
a disappointment," said BNP Paribas strategist Patrick Jacq.
Anything below a 100,000 jobs gain would significantly
disappoint speculative traders, although the lasting impact on
Bund prices was likely to be limited, Jacq said.
Many market participants remained sceptical that the
sell-off in German debt will continue to worsen, arguing that
the euro zone's domestic debt and low growth problems are far
from solved and the U.S. fiscal deal is merely a short term fix.
"I don't think the data in Europe has been particularly
good, we will take our lead from the U.S. but you'd have thought
Bunds should outperform (Treasuries)," the trader said.
Yields on Spanish and Italian bonds were barely changed on
the day and the rally inspired by greater risk-taking this week
was expected to unwind once both countries begin their 2013
fundraising challenges next week.
Spain's sale of a new two-year bond will be in particular
focus next week with investors still expecting Madrid to make a
bailout request soon, despite little signs of willingness from
Prime Minister Mariano Rajoy.