LONDON, Feb 19 (Reuters) - U.S. government bonds were steady in Europe on Tuesday, with better-than-expected German data offset by worries over the impact of potential spending cuts on the U.S. economy and political uncertainty in Italy.
German analyst and investor sentiment soared to its highest since April 2010, according to the ZEW think tank, with the data boosting the euro and European shares and causing a temporary dip in safe-haven German Bunds and U.S. T-notes.
But the price dip was immediately met by buying interest from investors concerned that an economic recovery could be derailed by across-the-board spending cuts of about $85 billion that could take effect on March 1 if lawmakers fail to agree on a plan to avoid them.
Also supporting Treasuries, one of the main assets used as a refuge from the euro zone’s debt troubles, were concerns that Italian elections on Feb. 24-25 could result in a fragmented parliament that could hamper any future reform efforts.
“We had a little bit of a sell-off after the ZEW ... but because of the (Italian) elections you’ll maybe see some better bids in Bunds and that filters through to Treasuries,” one trader said.
Ten-year T-note yields were last 0.3 basis points lower at 2.0017 percent. T-note futures were flat at 131-17/32, some 2/32 higher than the lows hit immediately after the ZEW release.
T-note yields could rise to around 1.85 percent by the end of this month, Tomohisa Fujiki, interest rate strategist for BNP Paribas in Tokyo, said.