EURO GOVT-Bund futures rise, lifted by strong U.S. debt sale

* Bunds recover Monday’s losses, boosted by U.S. auction

* Technical resistance seen curbing gains around 125.68

By William James

LONDON, Dec 28 (BestGrowthStock) – Bund futures rose on Tuesday,
tracking an overnight rally in U.S. Treasuries, which were
buoyed by strong demand at a two-year debt sale and weak Asian
stock market performance.

Bund futures (FGBLc1: ) were 60 ticks higher at 125.27,
extending gains made in after-hours trading on Monday.
U.S. Treasury prices rose after a two-year debt sale, which
had been closely watched for signs of weakness given thin
liquidity affecting markets. But the sale drew strong demand and
investors returned to lock in the relatively high yields on
offer.

“We saw a surprisingly well-bid two-year auction in the U.S.
yesterday. This was taken down really well which has given
Treasuries a bid and added to positive Bund sentiment,” said
Michael Leister, strategist at WestLB in Dusseldorf.

Overnight weakness in Asian stocks, which were hit by
China’s decision to raise interest rates on Saturday, also
helped bond markets globally, Leister said.

European shares (.FTEU3: ) had recovered some of the previous
day’s losses in early trading.

Bund futures rebounded from a fall in the previous session
and were approaching technical resistance around last week’s
high of 125.68, market participants said.

“Relatively speaking Bunds were cheap yesterday — we were
looking oversold. Today, on the other side, where we were last
week around 125.60-80 looks high enough,” a trader said.

With London markets closed and many investors waiting till
the new year to open fresh positions, trading in both core and
peripheral euro zone debt was thin.

Pressure was expected to resume in the new year on Portugal
and other euro zone sovereigns struggling to address the debt
and banking problems at the heart of the region’s debt crisis,
which may bring December’s selloff of safe-haven German paper to
a halt.

“We still believe that Bund will be one of the favourite
bonds for European portfolios. The rebalancing of portfolios
after the year-end could be in favour of Bunds. Peripherals will
hardly be the ones that investors are favouring,” said Morten
Hassing Povlsen, strategist at Nordea in Copenhagen.

The 10-year German bond yield (DE10YT=TWEB: ) was 2.964
percent, down 7 basis points, while the two-year Schatz yield
(DE2YT=TWEB: ) fell 7.3 basis points to 0.884 percent.

EURO GOVT-Bund futures rise, lifted by strong U.S. debt sale