August 21, 2013 / 3:56 PM / 5 years ago

German yields rise as investors look to Fed minutes

By Marius Zaharia and Ana Nicolaci da Costa
    LONDON, Aug 21 (Reuters) - German bond yields rose on
Wednesday as investors looked to the release of minutes from the
Federal Reserve's July meeting for direction in quiet, summer
    Bets the U.S. central bank may curb bond purchases as early
as next month drove 10-year yields to their highest since March
2012 on Monday and they have stabilized just below those levels.
    A German two-year auction went smoothly and had limited
impact on markets focused mainly on the Fed outlook. The minutes
will be scoured for hints on the timing and scale of cuts in
U.S. monetary stimulus, uncertainty over which has generated
volatility across financial markets.
    German Bund futures settled 47 ticks lower at
140.14. Ten-year yields rose 4 basis points to
1.88 percent.
    Analysts and traders said the fact that yields remained near
2013 highs of 1.924 percent showed markets were positioned for
the Fed minutes to show a scaling back of stimulus was imminent.
    "We do not expect much new guidance from the minutes so the
risk is that we see a bit lower yields in U.S. Treasuries and
Bunds," said DZ Bank strategist Christian Lenk, adding that he
saw more chances for Bund yields to fall to 1.70 percent than
rise to 2 percent later this year.
    He said any rise in yields if minutes do offer more clear
guidance was likely to be limited by the safe-haven appeal of
Bunds, which was enhanced by the sell-off in emerging markets.
    "(It's) probably just nervousness ahead of the (Fed),
definitely not helped by strong data," one trader said,
explaining market moves.
    U.S. home resales rose in July to their highest level in
over three years. 
    Germany sold just over 4 billion euros of new two-year debt.
    Although the 0.23 percent average yield was more than three
times that of July's auction, demand as measured by the
bid/cover ratio was only 1.8, down from 2 at the previous sale
and below a 1.9 average for sales of similarly-dated paper this
    Two-year yields were 1.1 bps higher at 0.22
    "The auction went reasonably O.K. given we're in a quiet
market," one trader said. "...The minutes could have a big
impact in low volumes."
    Other euro zone bond yields were also higher as the prospect
of lower central bank liquidity hit both low-risk and
higher-yielding assets.
    Greek debt underperformed, with ten-year yields
 up 11 basis points at 10.19 percent. 
    They hit their highest in three weeks on Tuesday after
German Finance Minister Wolfang Schaeuble said Athens would need
a third bailout and would get no more debt haircuts. 
    On Wednesday, the European Central Bank and German officials
sought to play down this. 
    "At the end of the day... if there is debt forgiveness, i.e.
if there is some sort of official sector haircut or debt relief,
then that boosts the value of Greek debt and if there is not,
then potentially the risks increase," the trader said.
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