| LONDON, Sept 3
LONDON, Sept 3 German Bunds were little changed
on Tuesday as investors reacted cautiously to a decision by U.S.
President Barack Obama to put off any military action in Syria
until after consulting Congress.
Obama's efforts to persuade lawmakers to attack Syria were
met with skepticism on Monday by some members of his Democratic
Party who expressed concern the United States would be dragged
into a new Middle East conflict.
Investors also kept an eye on the improving economic
picture, with data on Monday showing European manufacturing
activity beat forecasts, raising questions about the European
Central Bank's promise to keep rates low for a long time.
The ECB meets on Thursday facing higher money market rates
than when it took the unprecedented step of introducing forward
guidance on interest rates in July.
But action to counter the tighter market conditions, which
some fear could hinder the economic recovery, is unlikely given
that the ECB failed to agree on a rate cut at the start of the
summer when the economy looked in a worse state, analysts said.
"There doesn't seem to be much support for core paper ...
with the geopolitical bids out of the market. We're not
expecting (the ECB) to say anything positive for Bunds," one
Bund futures fell 1 tick to 140.09, while cash
German yields were flat at 1.904 percent, keeping
close to the 1-1/2 year highs of 1.98 percent hit last month
before the conflict in Syria escalated.
Core yields have risen also on expectations the Federal
Reserve could start trimming U.S. monetary stimulus later this
Some analysts say they are likely to rise further soon,
especially given that debt sales from top-rated Austria, Germany
and France this week are not supported by redemption flows.
"These yield levels of core paper may seem to those who are
focusing on a euro zone crisis and the Great Recession to be
generous," Credit Agricole rate strategist Peter Chatwell said
in a note.
"But on the basis of a forward-looking market, e.g. PMI-led
and adapting to developed economies which are growing, and this
week's net cash drain, we would not be surprised if the 10-year
Bund yield was to trend upwards to test 2 percent."