December 12, 2012 / 7:11 AM / 5 years ago

EURO GOVT-Bunds dip on bets of Fed easing

LONDON, Dec 12 (Reuters) - Bund futures edged lower on Wednesday as expectations of more Federal Reserve stimulus and the perception that U.S. lawmakers are showing more urgency in reaching a budget deal favoured riskier assets.

A Reuters poll showed the Fed is expected to announce that it will extend its asset purchase scheme and commit to buy $45 billion of U.S. debt per month. Safe-haven Bunds and U.S. Treasuries are closely correlated.

“The Fed dominates the landscape. Markets will be disappointed if (no more stimulus is announced), they are waiting for somewhere between 40 and 50 billion of monthly buyings,” one trader said.

Bund futures were last 14 ticks lower on the day at 145.27.

Monetary stimulus may not be able to sustain a fragile U.S. economic recovery if lawmakers fail to reach a budget deal to avert $600 billion of automatic fiscal tightening measures that could kick in next year.

But President Barrack Obama and U.S. House of Representatives Speaker John Boehner spoke by phone on Tuesday to exchange new proposals, in what investors saw as a sign of progress in efforts to avoid the fiscal cliff.

“It is a very fluid situation, but I think the pendulum has swung to being a little bit more positive this week,” the trader said.

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