German Bunds dip as markets still see imminent Fed tapering

LONDON: German Bund futures dipped on Monday, reversing some of Friday's gains made on below-forecast US jobs data, as investors continued to bet on the US Federal Reserve trimming monetary stimulus this month.

Last week's non-farm payrolls report added an element of uncertainty to expectations that the central bank will move to trim its bond buying at its Sept 17-18 meeting.

But 13 of 18 primary dealers in a Reuters poll taken on Friday after the data said the Fed will decide to start reducing stimulus this month. That was up from nine dealers a month ago. The median of forecasts was for a cut of $15 billion per month, down from $18 billion in the August poll.

Bund futures were 11 ticks lower at 137.58, while cash German 10-year Bund yields rose 1.4 basis points to 1.958 percent, having fallen some 10 bps on Friday.

"What happened on Friday doesn't change the big picture," ING rate strategist Alessandro Giansanti said. "The big picture is that the Fed will reduce the amount of liquidity in the market ... and the risk is still towards higher (yields)."

He said supply pressure stemming from bond sales in the Netherlands and Germany later this week also weighed on the market.

Pressure in the opposite direction came from concerns over a possible military strike in Syria, which traders said continued to play a role in limiting losses for low-risk Bunds. President Barack Obama faces a crucial vote in the US Senate on Wednesday on his proposal to attack Syria.

Italian bond yields rose as the Senate in Rome was set to begin a debate on whether to expel former premier Silvio Berlusconi from parliament in a move that threatens the country's left-right coalition.

"Italian political wobbles are definitely there in play ...We like Spain for choice - it is a bit more stable at this moment in time," one trader said.

Ten-year Italian yields rose 2 basis points to 4.53 percent, while equivalent Spanish yields traded at 4.55 percent. Commerzbank rate strategists also recommended investors to bet on Spain outperforming of Italy.

The political uncertainty is expected to raise borrowing costs for Italy when it sells debt on Thursday, although a solid domestic investor base should ensure sufficient demand.