By Marius Zaharia
LONDON, Aug 21 German bond yields were little
changed on Wednesday, with the market trading in narrow ranges
before the release of minutes of the Federal Reserve's July
The minutes will be perused for hints on the timing and
scale of cuts in U.S. monetary stimulus, uncertainty over which
has generated volatility across financial markets.
After rising to their highest since March 2012 on Monday as
markets increasingly bet the Fed's would move as early as next
month, German 10-year yields retreated on Tuesday. The same
expectations have caused outflows in emerging markets, with some
of the money eventually finding its way back into German debt.
On Wednesday, markets were calmer, with Bund futures
rising 7 ticks to 140.67, versus 2013 lows of 139.71
hit on Monday.
Ahead of an auction of two-year German debt that analysts
said was likely to go well, ten-year Bund yields
were flat at 1.84 percent, off Monday's highs of 1.924 percent.
Analysts said that, with yields close to 2013 highs, markets
were positioned for the Fed minutes to show a scaling back of
stimulus was imminent.
"We do not expect much new guidance from the minutes so the
risk is that we see a bit lower yields in U.S. Treasuries and
Bunds," said DZ Bank strategist Christian Lenk.
He said any rise in yields if minutes do offer a more clear
guidance was likely to be limited by the safe-haven appeal of
Bunds, which was enhanced by the sell-off in emerging markets.
Indian, Indonesian and other markets tumbled on Tuesday in
anticipation of reduced Fed asset purchases.
"If the turmoil continues and we see signs central banks
there are forced to raise rates that will be a factor weighing
on global growth and...(setting) a natural boundary for U.S. and
German rates," Rabobank market economist Elwin de Groot said.
Germany will sell up to 5 billion euros of new two-year
bonds later in the day, with analysts saying a recent rise in
yields was likely to lure investors.
"The absolute yield close to the highest levels since June
offers interesting switch opportunities out of the surrounding
(bonds on the German curve)," Commerzbank strategists said in a
The European Central Bank's promise to keep interest rates
at record lows for a long time could also support demand.
Two-year Bund yields were flat at 0.21 percent.