* Bunds pause after Monday's biggest daily gain since Dec
* Euro zone data better than forecast
* Spanish debt in focus before Thursday's sale
* Bunds seen outperforming Treasuries-analyst
By Ana Nicolaci da Costa
LONDON, Feb 5 German Bund futures fell in choppy
trading on Tuesday, pausing for breath after returning worries
over Italy and Spain spurred the biggest daily rise since
December in the previous session.
A good indication of how concerned markets are about a
corruption scandal in Spain, which led to calls for Prime
Minister Mariano Rajoy to resign, will be demand at a Spanish
bond sale on Thursday.
That and worries that an Italian election at the end of the
month will generate a government unable or unwilling to continue
with fiscal reform have halted progress for the euro zone's
lower-rated sovereign bonds.
"We had a very strong rally in peripheral markets, strong
spread compression in January which was probably faster than
fundamentals were favoring, so we are in a correction - it's not
a new trend, it's just a correction," said Patrick Jacq,
European rate strategist, at BNP Paribas.
Still, a survey showing euro zone businesses were more
optimistic about the future of the region's economy added to a
run of hopeful signals for euro zone policymakers. That pulled
Bund futures back to a session low of 142.33 but they
were still 26 ticks lower on the day at 142.38 at 0920 GMT.
Markit's Eurozone Composite PMI, seen as a good gauge of
economic growth, rose in January to a 10-month high of 48.6 from
47.2 in December - an improvement on the preliminary reading of
Ten-year Spanish government bond yields were
flat at 5.45 percent, while Italian yields were 3
basis points lower at 4.45 percent.
Borrowing costs in Italy and Spain have fallen steadily
since ECB President Mario Draghi pledged last July to do
whatever it takes to save the euro
The bank's plan for intervention in bond markets that
followed that has never been activated, but its existence has
deterred investors from selling peripheral bonds.
Piet Lammens, strategist at KBC, said the recovery in Bunds
was also just a readjustment after the sell-off it has seen so
far this year.
"It tested a downside last week of 141.28, it didn't go
through it and then it corrected. The correction may go somewhat
more," he said.
"The political uncertainty in Spain and Italy is only a
trigger for a correction, it is not something that will change
If the contract falls below the 141.28 level, the
next big support is 139.73 over the medium-term - a low hit in
September of last year, he added.
Investors will also look at data from the U.S. vast services
sector due later on Tuesday to gauge the monetary policy outlook
after recent releases have painted a mostly upbeat picture of
the world's largest economy.
A gauge of U.S. business investment plans dropped in
December, data showed on Monday, but separate releases last week
pointed to steady economic growth, showing job growth and
"At the moment, I think there is a kind of decoupling
between the U.S. and Europe and therefore I think the Bund can
outperform Treasuries," Jacq added.
"This has to do with the economic situation in the U.S. and
also the fact that risks are reemerging in Europe, this is
offering Bunds stronger support and therefore it makes sense to
see an outperformance."
In early European trading, the yield spread between 10-year
U.S. Treasuries and the German equivalent stood at 35 basis
points, little changed from the previous session but wider than
the 29 bps in late European trading on Friday.