Euro zone bonds slip before flood of U.S. data

Reuters

* Bund futures dip after one-point gains in past two days

* Investors brace for flood of U.S. data, including payrolls

* Potential Fed tapering delay seen supporting Bunds

By Emelia Sithole-Matarise and Marius Zaharia

LONDON, Oct 21 (Reuters) - Euro zone bonds mostly dipped onMonday as investors braced for a flood of U.S. economic datareleases delayed by a two-week government shutdown.

The U.S. government reopened last week after lawmakersreached a deal to raise the government's borrowing limit andpush back the threat of a default.

Analysts say the shutdown was long enough to hurt businessand consumer confidence and weigh on growth, and this helpedcontain losses in top-rated German Bunds.

The main focus this week will be Tuesday's release of theSeptember non-farm payrolls figure, which had beenscheduled for Oct. 4. Monday sees the release of housing marketdata.

Some in the market are expecting even the September data toshow the economy recovering more slowly than anticipated earlier this year and the uncertainty over the impact of theshutdown to keep market activity subdued.

"Markets are going to be very nervous and very much focusedon being swung around by the employment data," said DanielLoughney, fixed income portfolio manager at AllianceBernstein.

"People are very scared to position in this environmentbecause (of) the influences on that data, they feel as thoughthey don't have very good control of it."

Bund futures dipped 14 ticks to settle at 139.91,having risen more than a point since the U.S. debt deal late onWednesday. Cash 10-year German yields were 1 basispoint higher at 1.85 percent.

The delay in the September labour market report gave greaterimportance to the payrolls report for October, to be released onNov. 8, after being initially scheduled for Nov. 1. Some in themarket said that even if the September numbers were better thanforecast, expectations of poor October indicators will linger.

"Given the uncertainties and the negative effects of theshutdown on the economy this should be quite supportive forTreasuries and core European bonds," said Cyril Regnat, astrategist at Natixis.

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

Dutch, French and Belgian bonds also slipped, as did Spanishand Italian bonds but underlying sentiment for both safe-havenand lower-rated bonds was supported by expectations the Fedcould delay its plans to reduce monetary stimulus.

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