* German Bunds range-bound in holiday-thinned trade
* Friday's U.S. jobs report halts ECB-fuelled rally
* Analyst recommends Italy over Spain among riskier debt
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, May 6 German Bunds held stable on
Monday, with bets that the U.S. economic recovery will regain
momentum offseting support from expectations the European
Central Bank may ease policy further.
Bund futures rose to new highs last week after the ECB cut
its key interest rate to a new record low of 0.50 percent and
left the door open to further monetary easing.
But on Friday they posted the biggest daily loss since early
March after data showed U.S. employment rose more than expected
in April, denting appetite for low-risk assets.
The future was last 13 ticks lower on the day at
146.02 and a shade above Friday's low, having risen as high as
147.20 last week. Cash 10-year German bond yields
were 1.2 basis point higher at 1.26 percent.
"We saw quite a move into equities on Friday, but still we
expect support from central bank (policies)," said Emile Cardon,
market economist at Rabobank in Utrecht.
"I expect a near-term trading range of 1.20-1.40 percent,
but a bit more volatile given these two divergent themes: (U.S.)
macro data and expectations of a cut by the ECB."
Bund futures moved within a roughly 30-tick range on Monday,
with trading volatile as volumes sank due to a UK bank holiday.
By 1400 GMT, about 200,000 lots had switched hands, compared
with almost 900,000 on Friday.
Data in the euro zone contrasted with U.S. figures.
Retail sales in the euro zone fell for the second month in a
row in March, in line with expectations, and surveys showed a
business downturn continued in April, even though the final
index improved on an initial reading.
"We are still in an environment of low growth in the euro
area and the ECB has done less than other central banks... so
they have to do another step in terms of easing. This
expectation will keep the bond market bullish and German yields
lower," Alessandro Giansanti, senior rate strategist at ING
Lower-rated Italian and Spanish bond yields rose after
hitting their lowest since 2010 on Friday.
Ten-year Spanish yields rose 5.8 basis points
to 4.09 percent and the Italian equivalent edged 4
bps higher to 3.85 percent.
"The continued grab for yield amid the accommodative stance
means peripherals still remain well supported. We think the
rally in Spain has gone very far and we prefer Italy to Spain in
the five-year sector," Nick Stamenkovic, strategist at RIA
Capital Markets added.