December 19, 2013 / 7:11 AM / 4 years ago

German Bunds steady after Fed announces stimulus cut

LONDON, Dec 19 (Reuters) - German Bunds opened steady on Thursday after the Federal Reserve offset news it would start scaling back its monthly bond-buying stimulus programme by $10 billion by signalling its key interest rate would stay low for longer.

Chairman Ben Bernanke said the U.S. central bank may continue to reduce purchases steadily, suggesting that quantitative easing could end by around the end of 2014.

But he also said the Fed will probably keep the federal funds rate at zero to 0.25 percent well past the time that the U.S. unemployment rate falls below 6.5 percent, especially if inflation remains below 2 percent.

"The Fed ... wants to make clear it remains ready to adjust the pace of purchases according to the development of data, while reassuring actual policy tightening remains far away," said Jan von Gerich, chief fixed income analyst at Nordea.

"The relatively limited market reaction suggests the Fed has done a much better job in communicating the start of the tapering process compared to earlier this year, when the first suggestions of the ... tapering caused major market swings."

Bund futures opened 1 tick higher at 140.15, before falling to 140.06. Cash 10-year German yields rose 0.7 basis points to 1.852 percent.

U.S. 10-year yields fell 0.6 basis points to 2.8812 percent, reversing an initial rise after the Fed said it would reduce its stimulus programme to $75 billion a month.

"The tweaks of the guidance have offset the impact of tapering," one trader said. "People will probably be short fixed income for choice, but whether they're going to do that this year or net year I don't know."

"It's a hard call. There will probably be buyers at 3 percent in Treasuries. The EU outlook looks quite dovish so you would be long Europe against the U.S."

Later on Thursday, Spain plans to sell 1.5-2.5 billion euros in 2018 and 2023 bonds at its last debt auction of 2013.

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