EURO GOVT-Bunds dip on U.S. job hopes; French auction eyed

* U.S. employment expectations weigh on Bunds

* France to sell up to 9 bln euros of bonds

* Portugal auction: will they, will 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.

“Friday’s payrolls number is looking increasingly
significant,” a trader said.

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 30 ticks lower at 125.19.
Two-year bond yields (DE2YT=TWEB: ) were half a basis point higher
at 0.919 percent, with 10-year yields (DE10YT=TWEB: ) up 2.5 bps
at 2.974 percent.

“We’re probably going to have to get the supply out of the
way before the market can settle down,” the trader said.


Analysts expect a sale by France of up to 9 billion euros of
10-, 15-, and 20-year government bonds to go smoothly, although
Credit Agricole said the 2026 bond on offer was slightly
expensive relative to the other paper.

The sale comes 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.

“While the market may see a little more pre-auction
headwinds, the wind may become more supportive once the auctions
are out of the way,” said Commerzbank strategist Rainer

“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.”

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

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 6.8 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 389 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.

EURO GOVT-Bunds dip on U.S. job hopes; French auction eyed