* Italian, Spanish debt rebounds after Thursday's sell-off
* U.S. jobs data seen not strong enough to cut Fed stimulus
* German Bunds dip in choppy trade after U.S. data
By Emelia Sithole-Matarise
LONDON, June 7 Italian and Spanish bonds
outperformed other euro zone debt on Friday after U.S. jobs data
showed the economy was growing modestly but not enough to hasten
the Federal Reserve's stimulus measures.
Safe-haven German Bunds dipped in choppy trade as investor
appetite for riskier assets improved after the non-farm payrolls
report showed U.S. employers added 175,000 jobs last month, just
above the median forecast in a Reuters poll. The unemployment
rate ticked a tenth of a percentage point higher to 7.6 percent.
Financial markets had been nervous before the report that a
robust recovery in the jobs market could prompt the Fed to
starting reducing its asset purchases, which have pushed
investors into equities and higher-yielding bonds.
"The improvement in the labour market is there but it's not
as strong as one would have expected for the Fed to start
tapering so it has created a good momentum in riskier assets and
that's what's supporting the periphery," said Gianluca Ziglio,
head of fixed income research at Sunrise Brokers.
Italian 10-year bond yields fell 14 basis
points to 4.19 percent while equivalent Spanish yields
were down 11 bps at 4.55 percent.
The rally was also helped by short-covering of short
positions following a broad sell-off in euro zone bond markets
the previous day after comments by European Central Bank
President Mario Draghi doused expectations of imminent further
policy measures from the bank.
"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.
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.
Portuguese and Greek bonds underperformed on concern that
clashes between the European Union and the International
Monetary Fund over the handling of Greece's first bailout could
complicate future international rescues for the bloc's
German Bund futures reversed gains after the U.S.
data to settle 6 ticks down on the day at 143.39 while 10-year
yields were flat at 1.50 percent.