* Bunds rise as investors brace for weaker U.S. jobs data
* Euro zone bonds rebound after ECB-led sell-off
By Ana Nicolaci da Costa
LONDON, June 7 German Bund futures rose on
Friday as investors looking for insight into the Federal
Reserve's policy outlook positioned for weaker-than-forecast
U.S. jobs data.
Euro zone bonds broadly recovered from losses made on
Thursday after comments by European Central Bank President Mario
Draghi fuelled concerns over the future of global monetary
stimulus, but bonds of more vulnerable states underperformed.
Market participants said the main risk was that the data
undershoots expectations. According to a Reuters survey, 170,000
jobs were added in May though a private sector employment report
this week came in below forecast.
September Bund futures rose 63 ticks to 144.08. The
June contract expired on Thursday.
Markets have become particularly sensitive to U.S. data on
concerns the Fed may soon begin scaling back its bond purchases.
The central bank has said it will keep buying assets until it
sees a significant improvement in the labour market.
"I think we have got to see (payrolls) numbers above 200,000
on a consistent basis to start really unnerving markets"
regarding the possibility of Fed tapering, one trader said. But
he expected the payrolls report to be weak.
Euro zone bonds fell sharply on Thursday when Draghi gave no
hints that further monetary easing was imminent.
"The market probably over-reacted yesterday because the
market interpreted Draghi's comments as less dovish than
expected but, in the end, they still left open the possibility
to act further if the data worsens," Alessandro Giansanti,
senior rates strategist at ING in Amsterdam, said.
After holding its main interest rate at a record low 0.5
percent, the ECB said it discussed cutting its deposit rate to
below zero but would keep this and other unconventional options
"on the shelf" for now.
Highly-rated French, Dutch and Austrian bond prices rose.
Ten-year French yields fell 2.8 basis points to 2.10 percent,
Dutch yields were 4 bps lower at 1.86 percent and Austrian
borrowing costs were 3 bps lower at 1.75 percent.
Lower-rated debt underperformed, with Spanish and Italian
10-year bonds , which gained strongly
on Thursday, little changed on the day and Irish and Portuguese
debt under selling pressure.
But ICAP strategist Philip Tyson said lower-rated debt could
come under further selling pressure over the longer term.
Just as the ECB's bond-buying programme remains untested,
the prospect of negative deposit rates seemed some way off given
internal disagreements within the ECB, he said.
"I am wondering if the market is seeing through the verbal
support and needs to see something more solid," he said.