December 28, 2012 / 8:16 AM / in 5 years

German Bund futures fall, U.S. budget talks to limit sell-off

LONDON, Dec 28 (Reuters) - German Bund futures fell on Friday after rallying in thin trade in the previous session but traders expected them to rebound on concerns a deal on the U.S. budget will remain elusive.

Attention would also fall on Italy’s last debt auction of the year. Rome will offer between 2 billion and 3 billion euros of five-year bonds and the same amount of 10-year paper.

The auction was expected to meet good demand, but some traders said the amount on sale and the thin market conditions could make it challenging.

“We got a bit of a concession yesterday, but it’s quite a big size for this time of year. I am a bit concerned about the size,” one trader said.

German Bund futures were 10 ticks lower on the day at 145.44, but ongoing concerns over the United States’ ability to avoid a fiscal crisis early next year would likely limit the sell-off, the trader said.

The market has been sensitive in recent months to any comments on the progress of U.S. fiscal talks and optimism that a deal can be achieved before the end of the year is waning.

President Barack Obama and lawmakers are launching a last-chance round of budget talks before a New Year’s deadline. Economists fear failure to avoid the “fiscal cliff” of tax rises and spending cuts could push the world’s largest economy back into recession.

“The fiscal cliff talks are breaking down again,” the trader said. “I don’t see why Bunds should massively sell off at this time.”

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