* 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 German Bund prices rose on
Tuesday, with investors waiting for more evidence that the
global economy is recovering before deciding whether to sell the
euro zone benchmark debt.
This year's sell-off in Bunds, as newly confident investors
pushed riskier assets such as stocks sharply higher, has driven
prices down to important levels on technical charts which
sellers were unwilling to break through, traders said.
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.
Markets interpreted that above-forecast number as a sign
euro zone banks were growing stronger and becoming less reliant
on ECB support.
Some analysts had suggested banks would replace long-term
ECB loans with shorter-term ones but these concerns were
contained as the ECB said banks took 124 billion euros in
one-week loans on Tuesday, roughly 1 billion less than last
Analysts did not expect a lasting reversal in the selling
pressure Bunds have been under since the start of the year but
said yield levels were approaching technical resistance which
warranted a pause for breath.
"We've bounced off some technical levels around recent lows
(in price) as some people are taking profits, a few are putting
new longs ahead of this week's data," one trader said.
"But from the way the market sold off recently you'd still
think bears are in control and, for choice, most people will be
looking to sell into strength," he added, referring to investors
that had a negative view on Bunds.
Ten-year German yields were last 3.5 basis
points lower on the day at 1.661 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, their
highest in the second half of 2012.
"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.
FOCUS ON DATA
Bund futures were 33 ticks higher on the day at
142.12. They hit a two-month low of 141.61 on Monday, having
fallen by almost two full points in the past three sessions.
A second trader said that if they fell through Monday's
lows, their next target would be late October troughs around
140.85. UBS technical strategist Richard Adcock recommended
investors sell the Bund future, targeting 140.15, just above
"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," the second 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."
He said Wednesday's euro zone economic sentiment data and
the U.S. non-farm payrolls report on Friday would be key for
investors to decide whether to start selling Bunds again. "I'd
like to see stronger data going forward to vindicate these moves
(the recent sell-off)."
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 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," Rabobank's de Groot said.