* Bunds rise after poor U.S. data
* Investors position for dovish ECB tone on Thursday
* Five-year German auction meets solid demand
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, April 3 Bunds rose on Wednesday after
below-forecast U.S. economic data increased demand for low-risk
assets, but investors refrained from putting on big bets before
the European Central Bank's meeting on Thursday.
Analysts say the market had already positioned before
Wednesday's session for ECB President Mario Draghi to possibly
signal readiness to ease monetary policy further in the future.
But after a tight-ranged first half of the session, Bund
prices got a lift - sending yields lower - from weak private
sector jobs and non-manufacturing activity data in the United
German bond yields - the benchmark for the euro zone - are
set for a blip, however, if the ECB does not meet the market's
"With that data it makes sense that (bonds of) core
countries are searched for," said Norbert Wuthe, rate strategist
at Bayerische Landesbank. "But I think markets will be
disappointed tomorrow as ... they won't see more measures
towards loosening monetary policy (from the ECB)."
Such speculation emerged because of the way the euro zone
handled the Cyprus rescue process. The bailout deal was the
first to include a levy on bank depositors, sparking fears of
potential bank runs elsewhere in the euro zone.
The risk that the Cypriot crisis could have a wider impact
on the region prompted some investors to bet that the ECB may
seek to offer additional protection to peripheral markets by
pointing to lower interest rates later this year.
However, the Cypriot crisis has so far had little impact on
lower-rated euro zone bonds.
Ten-year Bund yields were last 1.5 basis
points lower on the day at 1.29 percent, while Bund futures
were 21 ticks higher at 145.45. Wuthe said that yields
could rise to 1.32-1.35 percent if Draghi did not soften his
tone at the meeting.
A sale of five-year German debt drew bids worth 1.9 times
the amount allocated to investors, unchanged from a previous
sale of similar paper in March, even though the yields on offer
were lower this time around.
"Average yield continues to decline which is a reflection of
the fact that investors are still prepared to put money into
German government bonds despite the low yield," said Nick
Stamenkovic, strategist at RIA Capital markets.
"That probably shows the niggling concerns about Cyprus and
political uncertainty in Italy."
Lower-rated debt has proven relatively resilient in the face
of concerns over the bailout in Cyprus and Italy's struggle to
form a government, but the low yield level on German bonds is a
sign that there is still demand for safety, analysts said.
The yield on the five-year bond was 1.3 basis
points lower at 0.32 percent.
DZ Bank strategist Christian Lenk said he expected the
economy to recover within the next two quarters and on that
basis the five-year part of the curve was looking expensive.
"Especially in the belly of the curve, around the five-year
seven-year (area), we expect a significant rise in yields," Lenk
said. "For the Bobls (five-year German bonds) for example, we
expect a rise in yields to 0.80 percent within about a quarter."