* German Bunds slide after U.S. Fed minutes judged hawkish
* Anticipation of strong payrolls report exacerbates selloff
* May rebound if U.S. data dashes high expectations
By William James
LONDON, Jan 4 German Bund prices fell on Friday,
extending the week's steep decline as doubts about the future of
the U.S. Federal Reserve's stimulus programme and expectations
of strong economic data curbed demand for low-risk bonds.
Minutes from the Fed's latest meeting added momentum to a
sell-off in German bonds that was sparked by U.S. policymakers'
last-gasp deal to avoid recession-inducing spending cuts and tax
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.
With U.S. developments at the forefront of investors' minds,
growing anticipation of an above-consensus non-farm payrolls
report later in the day saw some traders sell Bunds in
anticipation of profiting from a further fall after the data.
"It's a thin market which is exacerbating the move, but
really this is catch up with the U.S. after yesterday's (Fed
meeting)... people are also positioning for a pretty strong
payrolls number now. It's hard to stand in the way of Bunds at
the moment," a trader said.
Bund futures fell 91 ticks to a one-month low of
142.66, extending the sell-off seen over the last three sessions
in which Bunds have dropped nearly three full points.
The move was greater than that in U.S. debt, where futures
were down less than half a point, bringing markets into
line after Treasuries sold off when European markets were shut
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 swiftly see bunds recover
losses 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.
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.