* ECB expected to stay on hold; markets broadly steady
* Little progress on U.S. budget talks limits Bund's
* France sells 3 to 4 billion euros of debt
By Ana Nicolaci da Costa
LONDON, Dec 6 German Bund futures traded in
tight ranges early on Thursday with investors expecting little
from the European Central Bank policy meeting and as an impasse
in U.S. budget talks left them without clear direction.
The ECB is likely to keep interest rates on hold later in
the day but may offer clues on its policy path for next year
with updated forecasts likely to present a grim outlook for the
euro zone economy..
"The ECB will keep the door open for maybe another refi rate
cut early next year," Patrick Jacq, European rate strategist at
BNP Paribas said.
"I think there will be no change from the latest press
conference in early November. That's probably why the market is
relatively stable today ahead of the meeting."
On Nov 8, ECB President Mario Draghi said the euro zone
economy showed little sign of recovering before the year-end,
leaving open the possibility of an interest rate cut in the
German Bund futures were down 12 ticks on the day
at 143.68. The December contract rolls over this session and the
March contract was down 12 ticks on the day at 144.98.
"I don't think many people are expecting a cut, but people
generally are expecting a slight dovish tone overall," one
Long-term worries about the euro zone and more immediate
concerns about talks in the United States aimed to avert a
fiscal crisis have recently benefited safer government bonds and
French 10-year yields hit euro-era lows in the
The backdrop should bode well for a sale of 3 to 4 billion
euros of French debt maturing in 2018, 2019 and 2027.
French bonds have been in demand as attractive alternatives
to German bonds, because they offer relative safety and
liquidity, while also providing a pick-up over Germany's
"Even at 2 percent, (the French yield) might be (at)
euro-era lows, but it's still cheaper than German," a second
trader said, predicting the premium 10-year French debt offer
over Germany will fall further into year-end from 65 basis
Financial markets have been sensitive to any comments on the
progress of U.S. talks to avoid spending cuts and tax rises
being triggered in January. U.S. Treasuries firmed in Asian
trading with little signs of progress in Congressional talks on
"Our base scenario is that they will come up with some kind
of a solution to this. But it may take longer than the market
likes," Elwin de Groot, senior market economist at Rabobank
said. "We need to get over this uncertainty regarding the fiscal
cliff before we can see a more lasting turnaround in the Bund."
(Editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)