Bunds hold on to gains before flood of U.S. data

Reuters

By Marius Zaharia

LONDON, Oct 21 (Reuters) - German Bunds held on to lastweek's gains on Monday, as investors braced for a flood of datareleases that will show the state of the U.S. economy before alikely growth-stifling government shutdown.

A deal last week to lift the U.S. debt ceiling and avoiddefault reopened the U.S. government after a two-week shutdown,a period analysts said was long enough to hurt business andconsumer confidence and weigh on growth.

The government's reopening paved the way for the release ofa series of September economic data, which had been delayed.

The main focus will be on Tuesday's release of the Septembernon-farm payrolls figure, a report initially scheduled for Oct.4. Monday sees the release of housing market data.

Some in the markets are expecting even the September data toshow the economy recovering more slowly than anticipated earlier this year. But even if the numbers were better thanforecast, expectations of poor October indicators would linger.

"The danger is that the data shows a slowdown even before(the shutdown) ... The market's read is that it is going to slowdown (Federal Reserve bond-buying) tapering," one trader said.

Bund futures were 11 ticks lower at 139.94, havingrisen more than a point since the U.S. debt deal late onWednesday. Cash 10-year German yields rose 1 basispoint to 1.846 percent.

"The market reaction to the data will be asymmetrical. Weakpayrolls would suggest the U.S. economy slowed down even beforethe shutdown. If we get a strong number, markets will lookthrough it," said Richard McGuire, senior rate strategist atRabobank.

The last-minute U.S. deal only funds the government untilJan. 15, raising worries there could a new round ofgrowth-capping political brinkmanship at the turn of the year.

McGuire added that expectations the Fed could delay itsplans to reduce monetary stimulus were supportive for bothsafe-haven and risky assets.

Lower-rated euro zone debt was a touch stronger on Monday.

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