* Bunds rise after Friday's losses
* Stock markets down on global growth worries
* Expectations for euro zone meeting low
By Ana Nicolaci da Costa
LONDON, Oct 8 German Bund futures rebounded on
Monday after a sell-off the previous session, although investors
were reluctant to take big positions before a meeting of euro
zone finance ministers later in the day.
German Bund futures were 48 ticks higher on the day
at 141.35, having fallen 80 ticks on Friday as a surprise drop
in U.S. unemployment underpinned appetite for riskier assets.
"The market was probably a little bit oversold on the back
of the non-farm number (U.S. jobs numbers) on Friday," one
"I went long after the dip on the non-farm. Historically, if
you get a big move one way or the other it always retraces
itself within 24 to 48 hours."
The volume of trading was expected to be thinner than usual
due to a holiday in the United States.
There is also lingering uncertainty over the timing of a
possible Spanish bailout that would likely trigger European
Central Bank bond buying. A meeting of euro zone finance
ministers on Monday was expected to shed little light on the
Euro zone finance ministers will formally launch the euro
zone's permanent, 500 billion euro bailout fund on Monday, and
will also discuss an expected request by the Spanish government
for a precautionary credit line from the ESM.
Expectations that Spain will ask for aid has taken yields on
Spanish bonds sharply lower in recent months, but analysts say
for them to remain low, action is necessary.
"The guessing game will continue but the market will
increasingly realise that at the end of the day there will be
more debt mutualisation coming through, so we think Bunds remain
vulnerable despite the sell-off we have seen on Friday after the
payrolls," Rainer Guntermann, strategist at Commerzbank said.
"If anything our strategy recommendation would be to sell
On Friday, the U.S. unemployment rate unexpectedly dropped
to 7.8 percent in September and reached its lowest level since
President Barack Obama took office.
But analysts said the number was not enough to dispel fears
about the global growth outlook, with signs that China is
slowing and as the euro zone continued to struggle with the debt
Rabobank said in a research note that a bull-flattening
trend, where longer-dated bond yields fall more sharply than
shorter-dated ones, was likely to continue.
They added that the spread in yields between the euro zone
periphery and its core could also persist as the crisis drags
on, highlighting concerns over Spain.
Ten-year Spanish government bond yields were
flat at 5.71 percent Spanish borrowing costs over two years
were 4.6 bps higher at 3.20 percent.
Alessandro Giansanti, rate strategist at ING, said 10-year
yields could rise to a maximum of 6 percent as markets try to
push Madrid into a rescue, but investors would be reluctant to
sell much further for fear of being caught off guard by the ECB.
"Investors are a bit worried about taking a wrong position,"
he said. "Taking a short (selling) position at this level, there
is always the risk that at some point they will force Spain into
asking for support."