* U.S. consumer sentiment weighs on Bunds
* G20 meeting unlikely to soothe euro strength concerns
* Italian bonds seen vulnerable in run-up to elections
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, Feb 15 Forecast-beating U.S. consumer
sentiment figures pushed German Bund prices lower on Friday, but
the risk of an inconclusive result in Italian elections was
expected to limit losses in the near term.
The Thomson Reuters/University of Michigan preliminary
reading on the consumer sentiment rose to 76.3 from 73.8 in
January, topping economists' forecasts of 74.8.
The release raised the prospect that the recovery in the
global economy will eventually filter through to the euro zone
as well. Data on Thursday showed the region sank deeper than
expected into recession last year.
Bund futures were last 21 ticks lower on the day at
142.38, having traded as high as 143.01 before the U.S. data.
German 10-year yields were 2.2 basis points higher
at 1.657 percent.
"Most of the volatility is coming through from the United
States, where we've had some pretty decent data recently," said
David Keeble, global head of fixed income strategy at Credit
Bund yields traded in a narrow 1.60-1.70 percent range in
recent weeks, but outperformed U.S. Treasuries, with the spread
widening about 10 bps from mid-January levels to 37 bps. If the
euro zone manages to catch up with the other major economies,
and if political tensions in its weaker states start to ease,
the spread should narrow to 20 bps or less, Keeble said.
Near-term, though, Italian elections should keep Bunds
well-bid, traders said.
A surge in opinion polls by former Prime Minister Silvio
Berlusconi is seen as raising the risk of a fragmented
parliament, complicating efforts to overhaul the economy.
A rise in Italian and Spanish yields at the start of the
month was tempered this week by renewed buying interest from
domestic investors, traders said. But volatility can come back
at any time.
"Things seemed to have calmed down, but Italian elections
are a pretty big risk and we've got Spanish supply next week
which will give people a new reason to sell," one trader said.
Italian 10-year yields were steady at 4.40
percent, some 30 bps higher than January lows, but also about 30
bps lower than February's highs. Equivalent Spanish yields
were 5.20 percent, roughly in the middle of a
4.9-5.5 percent range seen in recent weeks.
Before the start of next week, investors will focus on a
meeting of officials from the Group of 20 major economies.
The wording of their final statement is expected
to confirm that Japan will escape any censure for its
expansionary policies which have driven the yen lower, reviving
talk of "currency wars".
"The market thinks the G20 cannot do very much about this,
it basically means that the euro in current conditions will have
a tendency to appreciate ...," Elwin de Groot, senior market
economist, at Rabobank said.
"Taking these things together - economic weakness (and)
persistent prospect of potential further upward pressure on the
euro - that could provoke action by European monetary
policymakers. For the Bund, it's positive because it raises the
potential for falls in money market rates."