(Corrects last name of strategist in final paragraph)
* Bund future falls to lowest since April 11
* Italy, Spanish bonds steady, fresh debt sales eyed
* Expectations of Japanese buying support periphery
By Emelia Sithole-Matarise
LONDON, May 10 German Bunds hit a one-month low
on Friday, tracking U.S. Treasuries as the dollar's sharp rise
against the yen spurred selling of U.S. debt already weighed
down after weekly jobs data on Thursday.
Demand for safe-haven bonds has been undermined over the
week by better-than-forecast data in the United States and in
Germany but traders said the selloff in Bunds was likely to
fizzle out in coming days on bets on more monetary easing by the
European Central Bank after it cut interest rates last week.
Bund futures fell as much 83 ticks on the day to
145.06 with the slide gaining momentum after a break below the
week's low of 145.37, which traders said had provided support.
"Bunds are selling off with U.S. Treasuries after the better
jobless claims data and the rise in dollar/yen which
wrong-footed some people," a trader said.
"But I think we might see some buyers coming in especially
in five-year (German bonds) which are approaching levels which
have attracted buyers this week."
German five-year yields were up 5 basis points
at 0.38 percent while 10-year Bund yields were 6 bps higher at
The 10-year yield gap between Bunds and Treasuries was
steady on the day around 54 bps after the benchmark U.S. yield
rose to its highest since early April, around 1.862 percent as
the dollar hit a four-year high of 101.40 yen.
Traders said the currency moves had prompted selling of
Treasuries by investors who need to hedge some structured deals.
Among lower-rated euro zone bonds, Spanish 10-year yields
rose 4 bps to 4.24 percent on speculation Spain
planned to issue more debt via syndication in the coming week
after a well-received sale on Thursday.
Some traders were nervous the market could find it hard to
digest such a flood of new debt in so short a time.
Italy also plans to issue up to 8 billion euros in
conventional and floating rate paper on Monday. Analysts said
that while traders might sell to make way for the auction,
underlying demand for higher-yielding euro zone debt supported
by the prospect of loose monetary policy should persist.
"The hunt for returns is still very much intact and the very
low yields in core bonds is still driving investors to
peripherals so I still expect Italian and Spanish spreads to
tighten against Bunds," said Alessandro Giansanti, a strategist
at ING in Amsterdam.
(Editing by Nigel Stephenson)