German Bunds rise

German Bunds rose on Friday on the view that the stopgap US debt deal may hurt the longer-term growth prospects of the world's largest economy and deter the Fed from running down its bond-buying until next year. Other euro zone bonds were also broadly firmer on the view that the region's lower-rated debt will benefit from the Federal Reserve maintaining its current pace of stimulus.
The last-minute deal to extend the US debt ceiling to February 7 and fund the government until mid-January have led to concerns that a new round of political brinkmanship will start at the turn of the year, weighing on consumer and business sentiment. Bund futures rose 37 ticks to settle at 140.05, having gained 75 ticks on Thursday. Ten-year cash German yields fell 4 basis points to 1.83 percent, moving in line with their US peers, which hit their lowest since August at 2.54 percent.
"The market is preparing for data showing the effects of the turmoil around the budget in the United States. The mood is going to be bullish for Bunds in the near term," said Chiara Manenti, fixed income strategist at Intesa SanPaolo. The United States will resume publishing economic data next week after a hiatus caused by the government shutdown which lasted more than two weeks. The releases will include the pivotal payrolls data.
Many market players expect Bund prices to rise, whatever the September jobs figures show. "Even if the data comes out stronger than expected, the market is going to take it with a grain of salt" because they are from before the shutdown, said Gianluca Ziglio, head of fixed income research at Sunrise Brokers.
"So you've got the bias by the market to take into account weaker rather than stronger data and the market betting on the Fed not tapering in December, taking everything into account it's good to expect a bullish market over the next week." He said he expected German 10-year yields to fall by 15-20 basis points more in the coming week. Weaker euro debt markets should firm too.
"Most people had expected the Fed to start tapering (bond buying) in December but there's a big risk there would be a further delay, especially if budget negotiations are not finalised before the December meeting" of the Fed, said Jussi Hilijanen, chief fixed income strategist at SEB. Italian 10-year yields were 4 basis points lower at 4.17 percent, while their Spanish counterparts traded 5 bps down at 4.26 percent.