EURO GOVT-Bunds turn lower after strong U.S. ADP data

* Bunds yields off 1-month low after strong U.S. ADP data

* German 10-yr bond successful; focus on Fri’s payrolls data

* Portugal issues t-bills but at higher yield

By Jessica Mortimer

LONDON, Jan 5 (BestGrowthStock) – Euro zone government bond prices
were dragged lower on Wednesday by falls in U.S. Treasuries
after U.S. ADP data showed an unexpected jump in jobs,
suggesting Friday’s payrolls numbers may beat forecasts.

German bond yields picked up after earlier hitting a
one-month low on falls in commodity and equity prices and
following a successful sale of 10-year German debt.

Private employers added 297,000 jobs in December, triple the
median estimate of economists and up from November’s 92,000
rise, an ADP Employer Services report showed. [ID:nN05264002]

It was the biggest ever rise in a private payrolls report
and a strong signal that the U.S. recovery may be gaining
momentum. It also raised expectations that Friday’s jobs data
could show a much bigger rise than the 140,000 consensus
forecast.

“At a time when it seemed to have become a convincing
pattern that Bund and Treasury yields were coming down, we saw
the ADP report and markets completely reversed,” said Kornelius
Purps, a fixed income strategist at Unicredit in Munich.

“The ADP was a big number and has definitely increased
expectations for Friday’s payrolls … But there are enough
issues in the coming days that will probably move markets in a
more lasting way than today’s ADP.”

The Bund future (FGBLc1: ) settled at 125.49, down 62 ticks on
the day. Earlier it had risen as high as 126.53, its highest in
a month.

German 10-year yields (DE10YT=TWEB: ) were up nearly 5 basis
points at 2.946 percent, well above an earlier one-month low of
2.845 percent. Two-year German bond yields (DE2YT=TWEB: ) were 0.9
bps higher at 0.918 percent.

Friday’s testimony from Federal Reserve Chairman Ben
Bernanke before the Senate Budget committee will also be watched
closely for hints on whether recent better U.S. economic data
could prompt policymakers to reassess the Fed’s bond-buying
programme.

GERMAN, PORTUGUESE AUCTIONS

Earlier, Germany sold 3.9 billion euros of 10-year
government debt (DE113542=: ) in the first euro zone bond auction
of the year, meeting improved demand from investors after a
series of lacklustre sales at the end of 2010. [ID:nLDE7040GK]

“Overall sentiment has shifted a bit…From the real money
side, we’re hearing that a 10-year yield around 3 percent is
much more attractive for the client base, especially the
buy-and-hold investors,” said WestLB rate strategist Michael
Leister.

The sale was supported by cash returned to investors from a
23.25 billion euro maturing German bond (DE113516=: ) and 12.5
billion euros of German coupon payments, according to Reuters
data.

France adds to the week’s core issuance, planning to sell up
to 9 billion euros of 2020, 2026 and 2029 bonds on Thursday.

Portugal also saw solid demand at a 500 million euro sale of
six-month t-bills, although yields soared as concerns about euro
zone debt persisted [ID:nLDE7040XG].

“On the face of it the auction met solid demand given the
healthy cover ratio, though this obviously comes at a much
higher yield than the previous six-month Portuguese offering
last September,” said Credit Agricole rate strategist Orlando
Green.
(Additional reporting by Kirsten Donovan)

EURO GOVT-Bunds turn lower after strong U.S. ADP data