* Bunds rebound after last week's big sell-off
* Further falls seen likely on improved U.S. outlook
* Euro zone data, ECB may be next market movers
By Marius Zaharia
LONDON, Jan 7 Investors snapped up German Bunds
on Monday, after the euro zone's lowest-risk debt plunged to
one-month lows last week, even though further falls were
expected after a raft of forecast-beating U.S. data.
Figures on Friday showing the U.S. services sector grew in
December at its fastest pace in 10 months, and a slightly better
than expected jobs report, added momentum to a sell-off in
German debt sparked by a last-minute budget deal to avert a U.S.
Bund futures fell by almost three points last week
to their lowest in a month at 142.52. On Monday, at the start of
the first full week of trading of 2013, they rebounded and were
last 30 ticks higher at 143.05.
"We're now entering a period of consolidation, but the
momentum still seems to be with the bears after what we've seen
in the U.S.," one trader said, referring to investors who expect
Bunds to fall further.
Analysts said Bunds could fall further in the near term as
the improved U.S. outlook and the relative calm in the euro zone
provide a favourable environment for yield hunting.
"There's an overall tendency to say goodbye to safe-haven
assets and pick up yield somewhere. If you just keep on holding
your safe-haven assets you will somehow bleed to death," said DZ
Bank rate strategist Christian Lenk.
"Even if you don't see very positive news in the next few
weeks I could well imagine we will see lower levels in the Bund
and a return to yield levels where we've seen resistance in the
past ... the 1.60-1.70 percent area is crucial."
Risks to that scenario stemmed from a potentially bitter
Italian election campaign and knife-edge debates about lifting
the U.S. debt ceiling, he said.
Cash 10-year German yields were last 2 basis
points lower at 1.525 percent. Significantly, they broke above
1.46 percent last week -- a level they repeatedly failed to
break in November and December -- signalling yields were likely
to rise further.
The slight rebound may also reflect caution before a spate
of euro zone data and a European Central Bank rate-setting
meeting later this week, at which the bank is seen holding fire
and may back away from the easing signals sent last month.
This week's euro zone releases include unemployment, retail
sales and some business sentiment indicators.
"A lot of the sell-off was led by the United States last
week. To see further falls in Bunds you need some positive news
in the euro zone as well," Rabobank rate strategist Lyn
"The ECB could be relatively neutral, not changing the
deposit rate nor the refi rate and not doing anything else
UBS technical analyst Richard Adcock said despite the
bounce, the "market can pull back further to test the Oct. 18
low at 141.14." He suggested a 141.20 target on Bunds, with
stops placed at 143.80, just above the 38 percent retracement of
last week's sell-off.
Other euro zone government bond yields were also relatively
steady on Monday.