* Ten-year Bund yields meet technical resistance
* Fresh strong data needed for sell-off to resume
* Spanish, Italian yields slightly higher
By Marius Zaharia
LONDON, Jan 29 Bunds edged up on Tuesday, with
investors waiting for more evidence that the global economy is
recovering before deciding whether to sell German debt through
key technical levels.
Monday's better-than-expected U.S. durable goods data added
momentum to a recent sell-off in Bunds triggered by the European
Central Bank's announcement last week that banks planned to
repay 137 billion euros of three-year loans taken in late 2011.
Analysts did not expect a reversal in the selling pressure
Bunds have felt since the start of the year, but said yield
levels were approaching key technical resistance which warranted
a pause for breath.
"Ten-year yields are pretty close to the September highs
from last year so we're getting into a territory where perhaps
it's time for a pause and a reality check," Rabobank market
economist Elwin de Groot said.
Ten-year German yields were last 1.6 basis
points lower on the day at 1.68 percent, according to Reuters
data, just off Monday's 4-1/2 month highs of 1.712 percent and
almost 40 bps higher since the end of last year.
Last September, they rose as high as 1.737 percent, the
highest level seen in the second half of 2012.
Last week's ECB data was taken as a sign the banking system
was recovering, sparking selling pressure in Bunds led by the
shorter-dated maturities. A raft of upbeat data in the United
States this year has also contributed to weakness in Bunds,
prompting some market participants to expect a more lasting
"We're in a scenario in which we have a bit of a sell-off,
then technicals kick in and it all becomes a bit
self-fulfilling," one trader said.
"Trying to buy feels like catching a falling knife. You need
a strong reason to buy and I don't think we've seen one apart
from just some views that it (the sell-off) has gone too far."
FOCUS ON DATA
Bund futures were 8 ticks higher on the day at
141.87. They hit a two-month low of 141.61 on Monday, having
fallen by almost two full points in the past three sessions.
The trader said that if Bund futures fell through last
session's lows, their next target would be late October lows
"Yesterday was a pretty messy day so we may have a few
people looking to oppose this move," he said. "I'd like to see
stronger data going forward to vindicate these moves."
Investors will pay particular attention to Wednesday's
economic sentiment data out of the euro zone and U.S. non-farm
payrolls data on Friday.
Italian and Spanish bonds, which have rallied strongly this
year, were weaker on Tuesday. Spanish 10-year yields
were 4.4 bps higher on the day at 5.27 percent.
On Monday, the European Union's economic and monetary
affairs commissioner, Olli Rehn, said Spain's fiscal targets
could yet be relaxed again if the economy was found to have
seriously deteriorated. Spain has already been given an extra
year, until 2014, to meet its deficit target.
"I'm not saying this is what is moving the markets today,
but it underlines the tough climate Spain is facing ... and
shows how long is the road to budget consolidation in these
countries," de Groot said.