* Bunds fall in line with U.S. Treasuries
* Moves seen limited before Fed, 144.00 seen hard to break
* Bunds could outperform Treasuries near-term - analyst
By Marius Zaharia
LONDON, June 18 German Bunds dipped on Tuesday
in line with U.S. Treasuries on speculation the Federal Reserve
will signal it is moving closer to trimming its bond purchases
at a meeting this week.
Stimulus by central banks around the world has been the main
driver of stock markets gains this year but has also served to
put a ceiling on any rise in top-rated bond yields.
Concern that the Fed may slow down has shaken that status
quo this month. Lower-rated euro zone bond yields moved away
from multi-year lows and German yields hit their highest in
three months last week, before weaker-than-expected U.S. data on
Friday stabilised the market somewhat.
On Tuesday Bund futures were 22 ticks lower on the
day at 143.56, with trades reporting low volumes driven by
investors making their final adjustments to their positions
before the Fed announcement late on Wednesday.
"There's talk about the Fed tapering (down asset
purchases)," said one trader. "(Overall) the market is now
positioned for hopes that they might not be as aggressive as
feared, but conviction is very low."
Bunds face resistance around the 144.00 level, chartists
say. The future failed to break that level on Monday, hitting
143.99 twice before retreating, while the 38 percent Fibonacci
retracement of the May to June losses at 143.98 is seen as an
extra shield to the 144 area.
While the price falls in Treasuries have weighed on Bunds
recently - with the two assets usually moving in the same
direction due to their safe haven status - analysts see
potential for Bunds to outperform in the near term.
"If you look at Europe, there's uncertainty that there will
even be a recovery later this year," Rabobank market economist
Elwin de Groot said.
"The ECB will continue to use the verbal intervention weapon
to contain money market rates," he said, adding that he saw
potential for a 10-20 basis points widening in the yield spread
between 10-year German and U.S. debt in the next three months.
European Central Bank President Mario Draghi reiterated on
Tuesday the bank was "ready to act" if needed to aid the euro
zone economy. He also signalled that the
monetary transmission mechanism, by which ECB rate moves are
passed through to actual costs of borrowing in the economy, had
The U.S./German 10-year yield spread
was last 63 basis points.
Other euro zone bonds were relatively stable on Tuesday.