German Bund futures rose on Friday as the latest bout of economic data cooled optimism about a global recovery, while investors looked to Italy's bond sale next week to gauge if the renewed worries about peripheral euro zone states were justified.Bunds rose to their highest since March 13, closing up 1.5 percent on the week, after seeing their biggest weekly loss since 2001 the week prior.
Optimism over the global economy, fuelled last week by an improvement in US data, was undermined somewhat by weak factory activity data in China and the euro zone on Thursday. "Over the past few days we had some macro disappointments coming through, which probably took the market and most observes by surprise," Rainer Guntermann, strategist at Commerzbank said. "Now the market may start to question the robustness of the recovery."
He said the bounce back in Bunds this week was also to do with a support level at 135.25 - the 200 day moving average - but he did not expect a resumption of the bull-run that took the Bund to a contract high of 139.06 on March 12. The German Bund future saw a settlement close of 137.39 - up 30 ticks on the day. Charles Berry, a trader at Landesbank Baden-Wurttemberg, however, still saw potential for the future hitting 140 over the next two months.
Two traders earlier said there had been talk of asset reallocation away from equities. But European shares recovered to close fractionally higher. Italian and Spanish bonds had come under pressure in early trade but reversed to trade higher on the day by the end of the session. Spanish bond yields fell 11 basis points to 5.40 percent and Italian yields were down 4.3 bps at 5.06 percent. Traders said market participants were covering previously held short-positions - or bets that those bonds would fall - ahead of the weekend.
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