December 17, 2012 / 9:16 AM / 5 years ago

EURO GOVT-Bunds dip on some sign of progress on U.S. budget deal

* Talks on U.S. budget deal go on, some progress seen
    * LDP wins Japan election, increasing cbank easing bets
    * Bund futures inch lower, periphery little changed

    By Marius Zaharia
    LONDON, Dec 17 (Reuters) - German Bunds dipped on Monday
following signs of progress in the United States towards
averting a fiscal crisis next year, but losses were capped by
the limited time left for U.S. lawmakers to reach a final deal. 
    The first palpable sign of progress in talks to avoid
automatic, large-scale fiscal tightening next year came on
Sunday, when Republican House Speaker John Boehner offered to
accept a tax increase for the wealthiest Americans.
    His offer knocks down a key stumbling block in the
negotiations, but Boehner and President Barack Obama still have
plenty of unresolved differences such as the budget for
healthcare programmes. 
    About $600 billion worth of tax hikes and spending cuts are
due to come into force next year if a deal is not reached.
    Bund futures were 7 ticks lower on the day at
144.86, while 10-year cash yields were 0.7 basis
points higher on the day at 1.368 percent.
    "At least we do seem to have some broad (positive) backdrop
for negotiations going forward, but clearly time is running
out," said Nick Stamenkovic, bond strategist at RIA Capital
Markets in Edinburgh. 
    Some traders had expected a landslide election victory in
Japan by the Liberal Democratic Party to give a strong tailwind
to equities and weigh on safe-haven assets, such as German debt.
    Japan's next Prime Minister Shinzo Abe piled pressure on the
central bank on Monday, saying voters had backed his call for
aggressive monetary stimulus.
    The vote gave the LDP and its small ally a two-thirds
majority in the lower house, which is expected to ease the
passage of growth-boosting measures.
    But as volumes get thinner towards the end of the year, many
investors will stay clear of large bets and trades are likely to
become more "technical", traders said. European
shares were steady. 
    "It's mainly a technical move (in the Bund market). We are
now testing last Friday's lows at around 144.75 and we have
failed to break that (in a sustainable way)," one trader said.
"We're now playing the (range) between 145.00 and that level."
    Debt issued by the euro zone's lower-rated sovereigns was
little changed, with Italian 10-year yields 
trading 1 basis point lower at 4.58 percent.

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