LONDON Aug 7 German Bund futures rose on
Wednesday after Federal Reserve officials said the U.S. central
bank may scale back monetary stimulus in September, hitting
risky assets and supporting safer ones.
Chicago Fed President Charles Evans and Federal Reserve Bank
of Atlanta President Dennis Lockhart suggested the central bank
may reduce the pace of bond purchases as early as next month,
depending on economic data.
Bund futures rose 25 ticks on the day to 142.32,
with 10-year cash German yields falling 2 basis
points to 1.68 percent. U.S. T-note yields were also
2 bps down at 2.62 percent.
Analysts said Bunds and Treasuries were supported by
weakness in European stocks rather than prospects of less
central bank demand, because reduced stimulus was "better priced
in" by the bond markets.
"More and more the market has priced in the scenario of
tapering. Whether it's September or December is less of a factor
for bonds," said Elwin de Groot, market economist at Rabobank.
"For equities it's a different story because they've been
holding out quite well, with the earnings season confirming that
companies - especially in the U.S. - were doing OK."
Germany will sell up to 4 billion euros of five-year bonds
later in the day, a sector of the curve that has been
historically sensitive to shifts in monetary policy outlooks.
More positive data releases out of the euro zone in recent
weeks and an upcoming U.S. 10-year T-note auction could weigh on
overall demand for the paper.
However, the European Central Bank's accommodative monetary
policy and this month's rise in five-year yields should ensure
the auction gets sufficient bids to go smoothly.
"The recent underperformance might look attractive,
especially for those who are not convinced that the recent
strength of (euro zone) data is going to last," said Newedge
market economist Annalisa Piazza.
Five-year German yields were 1 bps down at 0.68
percent, some 18 bps higher than July's lows.
Other euro zone bond markets were relatively steady.