EURO GOVT-Bunds dip on U.S. job hopes; France sells bonds

* U.S. employment expectations weigh on Bunds

* France sells almost 9 bln euros of bonds

* Portugal auction: will they, won’t they?

By Kirsten Donovan

LONDON, Jan 6 (BestGrowthStock) – German government bonds fell on
Thursday, extending the previous session’s sell-off after U.S.
data led to higher expectations for a key employment report,
lessening the appeal of low-risk assets.
Bunds fell on Wednesday after a record jump in U.S. ADP
private-sector employment data prompted economists to revise up
their forecasts for Friday’s U.S. payrolls report.

A Reuters poll said payrolls probably increased by 175,000
in December, up from the 140,000 expected before the ADP report
was released. [ID:nN05284674].

“The market has the bit between its teeth regarding U.S.
growth…we need an average of 250,000 (jobs added) a month to
realise currently embedded expectations,” said Lloyds Bank rate
strategist Eric Wand.

March Bund futures (FGBLc1: ) were 24 ticks lower at 125.25.

One trader pointed to technical support in the 124.90 to
125.10 area, based on a rising trendline from December’s lows
and the values of the 14- and 21-day moving averages.

Two-year bond yields (DE2YT=TWEB: ) were half a basis point
higher at 0.921 percent, with 10-year yields (DE10YT=TWEB: ) up
1.5 bps at 2.966 percent, holding in the 2.80 to 3.08 percent
range in place through December.

“These levels should hold ahead of the payrolls report
tomorrow,” said a trader.

“If we get a strong number then we could see a break to the
downside but with the market looking for a number over 200,000
(jobs added) the danger is you get a disappointment.”


France sold just shy of up to 9 billion euros of 10-, 15-,
and 20-year government bonds, meeting decent demand but with
yields rising since the previous sale, reflecting moves in the
secondary market.

The sale came a day after Germany found improved demand at a
sale of almost 4 billion euros of debt following a series of
lacklustre sales at the end of 2010.

“These auctions are doing well and it’s relatively important
for the market psychologically because there was some concern at
the end of last year, even for triple A paper,” said BNP Paribas
rate strategist Patrick Jacq.

Yields on the 10-year bond sold on Thursday (FR10YT=TWEB: )
have risen around 55 basis points from their lows in November,
when the October 2020 bond was last offered for sale.

Spain and Italy kick off peripheral issuance next week, with
bond sales on Thursday Jan 13.

“Even though there is more AAA-supply lined up at the
beginning of next week…the market may start to focus on the
first government bond supply out of the euro area’s periphery,”
said Commerzbank strategist Rainer Guntermann.

Portugal typically issues bonds on the second or fourth
Wednesday of the month and would have to announce on Thursday
any plans for issuance next week, according to the country’s
debt agency’s website. It has also said it plans syndicated
sales in the first quarter.

“The syndicated route might be better for them in terms of
getting paper away,” Wand at Lloyds said.

“Yesterday’s 6-month bill auction with those sort of yields
at that maturity didn’t carry a great deal of risk, but
longer-dated paper is a bigger test.”

Portuguese bond yields remain stubbornly high — 10-year
yields (PT10YT=TWEB: ) for example are around 6.9 percent — with
the debt-laden country seen as next in line for financial

The 10-year yield spread over Bunds climbed steadily through
December, rising more than 70 bps to stand at 391 bps on

“People are waiting for the periphery to have another wobble
and when the supply machine gets going, that will be the true
test of sentiment,” Wand said.
(Additional reporting by William James; editing by Nigel
Stephenson and Stephen Nisbet)

EURO GOVT-Bunds dip on U.S. job hopes; France sells bonds