* Bunds, lower rated bonds flat as Fed says will trim
* Fed's rate guidance offsets decision on bond purchases
* Some analysts see Bund, Treasury yields rising near-term
* Moves to be data-dependent, probably not to occur before
By Marius Zaharia
LONDON, Dec 19 German Bunds held steady on
Thursday after the Federal Reserve offset a decision to reduce
its bond-buying programme by promising to keep interest rates
low for longer than many investors had expected.
Fed Chairman Ben Bernanke said the U.S. central bank would
reduce monthly asset purchases by $10 billion to $75 billion and
that it may continue to cut them back 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 U.S. central bank's stimulus programme has given
substantial support to financial markets and the gradual
withdrawal of it is expected to lift core yields off historical
The Fed's comments on its key rate outlook meant market
rates did not rise sharply, a move which could have posed risks
to the U.S. and global economic recovery, analysts said.
Bund futures were last flat at 140.14, while
10-year German yields were unchanged at 1.845
percent, comfortably below this year's highs of over 2 percent.
U.S. 10-year T-note yields were also flat at 2.8867,
erasing an initial rise on the Fed's announcement.
"The dovish comments on the rate guidance reduced (upward)
pressure on yields," said Alessandro Giansanti, senior rate
strategist at ING in Amsterdam. " But if the recovery continues
at the current pace we are going to see higher yields."
Giansanti expected U.S. 10-year yields to hit 3 percent in
the next three months and Bund yields to test 2 percent. The
premium U.S. T-notes offer over Bunds, currently at roughly 100
bps, should rise to 120 bps, he said, arguing the U.S. economy
will recover faster than Europe while the European Central Bank
will stick to its soft monetary policy stance.
Investors will wait for new evidence the recovery is picking
up before further trimming their bond portfolios, he said.
"Future data releases, especially the (U.S.) payrolls
numbers, will continue to be a big source of volatility," said
Jan von Gerich, chief fixed income analyst at Nordea in
One trader said investors would probably prefer equities
over Bunds and Treasuries, but the shift in allocations was
probably going to occur at the start of 2014, with many having
already closed their books for this year.
Lower-rated euro zone bonds also held their ground.
Italian 10-year yields were flat at 4.08
percent, a touch above recently hit six-month lows, while
equivalent Spanish yields rose 1 bp to 4.17
percent before Madrid's last debt auction of the year.
Spain plans to sell 1.5-2.5 billion euros in 2018 and 2023
bonds, having reached its funding target for this year with a
strongly-bid auction earlier this month.
"Spain continues to trade well, thanks to better incoming
data, stable rating outlook and improving market confidence. We
expect Spain to outperform core and peripheral (bonds) over the
coming months," Citi strategists said in a note.