* German 10-year yields dip near record lows
* U.S. consumer spending data fails to meet expectations
* Growth forecasts slashed in Italy, Austria
* Moody's says Spain tax reforms troubling
(Updates with reaction to U.S. data)
By Marius Zaharia
LONDON, June 26 German Bund yields edged towards
all-time lows on Thursday as a weakening growth outlook for the
euro zone and United States cemented the view that central banks
will keep supporting their economies for a prolonged period.
A second downwards revision of Q1 U.S. economic growth on
Wednesday, followed by below-forecast consumer spending data on
Thursday softened expectations that the Federal Reserve would
reverse course on its ultra-easy monetary policy any time soon.
Weak data out of the euro zone earlier in the week had a
similar impact, boosting the ranks of those who believe the
European Central Bank may eventually start buying assets.
"The power of the ECB is very high, and the fact they can
come with unlimited support to peripheral markets is still
making investors scared of taking short positions," said
Alessandro Giansanti, senior rates strategist at ING.
German 10-year yields dipped 2 basis points to hit 1.24
percent, nearing the all-time lows of 1.13 percent seen in the
summer of 2012, at the height of the euro zone debt crisis, when
investors sought refuge in top-rated assets.
Some safe-haven appeal remains for Bunds as a Sunni
insurgence in Iraq has raised worries about the global growth
outlook, although oil prices eased somewhat from nine-month
highs on Thursday.
Traders say large coupon payments and redemptions next month
will offer further support for euro zone bonds. German bonds are
likely to be one of the main beneficiaries of the reinvested
cash if the conflict in Iraq escalates.
The ill-health of the euro zone economy has helped support
demand for sovereign debt across the bloc despite the fact that
the credit worthiness of those bonds was deteriorating.
An Italian employers' lobby and an Austrian think tank both
slashed their growth forecasts for their countries on Thursday,
while ratings agency Moody's said Spain's plans for broad tax
cuts weighed on its credit rating as they put budget deficit
targets at risk.
"I find it scary," said Guido Barthels, CIO at
Luxembourg-based Ethenea. "It's a big concern for me because
that means we are depending on the policy of the central banks
and they are known for making policy mistakes from time to
Italian and Spanish 10-year yields
edged down to 2.72 percent and 2.64 percent. They were just a
tad above record lows hit earlier this month.
Not all investors are in awe of peripheral bonds, however.
Barclays' head of asset allocation research Jim McCormick said
he has removed his long-standing overweight position in them.
"The truth is there's plenty of long-term risks around debt
sustainability in these bonds, and growth is starting to
disappoint a little," McCormick said. "If you look at peripheral
bonds in the last four or five years, any stress tends to be led
by or coincides with a weakening in the growth story."
(Additional reporting by John Geddie; Editing by Hugh Lawson)