* Bund selloff meets technical resistance, yield rise slows
* Markets look to upcoming economic data for fresh signs
* Italy supply seen well supported, German auction less so
By Marius Zaharia
LONDON, Jan 29 Selling pressure on German debt
eased on Tuesday when technical barriers prompted investors to
weigh the implications of economic data before backing any
Bunds have fallen sharply since the start of the year as
newly-confident investors switch to riskier assets such as
stocks, and the move accelerated this week on upbeat U.S. data
and larger-than-expected loan repayments to the European Central
Nevertheless, after such a steep fall Bunds showed some
resistance and traded slightly stronger on the day. Futures
contracts were 3 ticks higher at 141.82 while 10-year
yields were flat at 1.69 percent.
"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 bearish view on Bunds.
Market participants said 10-year yield levels were
approaching technical resistance around the 1.737 percent highs
last seen in September 2012, but that they did not expect a
lasting reversal in the selling pressure on Bunds.
"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," a 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)."
As well as economic data, Wednesday's session brings the
second of two rounds of bond sales this week from Italy and an
auction of ultra-long bonds from Germany.
The Italian supply was expected to match recent strong
auctions, helped by large redemption payments from an expiring
BTP bond and the market's generally strong appetite for more
risky but higher-yielding debt.
A 3 basis point fall to 4.17 percent on the Italian 10-year
yield supported expectations of a strong sale,
showing that dealers were not trying to push yields up ahead of
the auction in the usual concession-building process.
Unicredit said the 10-year bond on offer made an attractive
swap for holders of the existing August 21 bond, offering a
yield pickup of 44 bps - a near record for the spread between
Demand for the German ultra long bond was expected to be
sufficient to ensure a smooth sale but a recent flattening of
the yield curve caused by rising short-term rates had reduced
the attractiveness of the paper.
"We've seen flattening pressures developing recently; I'm
not sure that these point to very strong demand for ultra-long
papers. Probably tomorrow's sale will go well, but I'm not
expecting very massive demand," said BNP Paribas rate strategist