* Euro zone bonds rise across credit spectrum after deal
* Temporary nature of deal a worry, seen delaying Fed
* Spain and France to sell bonds
By Ana Nicolaci da Costa
LONDON, Oct 17 Euro zone debt rose across the
credit spectrum on Thursday as some investors bet a temporary
deal to avoid a U.S. debt default would delay any move by the
Federal Reserve to scale back bond-purchases.
In an erratic response to the deal approved by the U.S.
Congress, Asian and U.S. stock markets rose overnight but
European stock markets opened lower.
The short-term nature of the deal to some extent tempered
relief that a historic default had been avoided for now.
The deal does not resolve the fundamental issues of spending
and deficits that divide Republicans and Democrats, funding the
government only until Jan. 15 and raising the debt ceiling until
"They have kicked the proverbial can down the road and U.S.
fiscal negotiations will restart early next year. Consequently
it's going to be very difficult for the Fed to taper at that
time," Nick Stamenkovic, bond strategist at RIA Capital Markets
"As a result the market is increasingly confident that a
reduction of QE (quantitative easing) is unlikely to be on the
agenda until well into 2014. So that's given Treasuries a boost
and that's filtered through to Bunds."
German Bund futures jumped 52 ticks to 139.43,
pushing 10-year German yields 4.5 basis points
lower to 1.89 percent.
They played catch-up to U.S. yields which have
fallen more than 10 basis points from the previous day's highs.
U.S. yields were down 3.3 basis points at 2.64 percent.
The yield spread between ten-year U.S. Treasuries and
equivalent German Bunds tightened 5 basis points to 75 bps.
"Is it good that they have got a deal out of the way for
Treasuries? I suppose it is (because) they are not going to go
bust," one trader said. "It's only a short-term thing, it runs
out in January, February time."
Other highly-rated euro zone debt was also higher.
Ten-year Dutch yields were 3.8 basis points
down at 2.26 percent, Austrian yields eased 4.2
bps to 2.27 percent and equivalent French yields
fell 3.8 basis points to 2.40 percent, even as investors awaited
a French bond sale.
France is set to sell 6.0-7.0 billion euros of fixed-rate,
medium-term bonds and 1.0-1.5 billion euros of inflation-linked
bonds at an auction later.
Riskier periphery bonds also rose with ten-year Italian
yields down 2.5 basis points at 4.22 percent.
Spanish yields were flat at 4.30 percent before an auction
of three-year and five-year paper.
"The overall appetite for risk has improved and that's
clearly supportive for the likes of Spain and Italy,"