RTRS: EURO GOVT-Bonds weaker before euro zone data
* Record high Bunds dip in profit-taking moves
* Bunds well supported on U.S. slowdown worries
* Belgium raises cheapest 10-year funds in euro lifetime
By George Matlock
LONDON, Aug 23 (Reuters) - German Bund prices fell on Monday as investors booked profits after last week's record highs, brushed aside euro zone data, and stayed cautious ahead of more currency bloc data expected later in the session.
Although flash euro zone Purchasing Managers' Index data was slightly below forecast, at 56.1 it continued to show economic expansion and companies were more optimistic about coming months in spite of growth rate divergence in the currency bloc. [ID:nSLAKJE6AH]
But attention had moved on to the euro zone consumer confidence survey for August due at 1400 GMT. In July it was minus 14.10, underscoring the fragile nature of any currency bloc-wide recovery.
"Market position has not changed all morning. We are jobbing a range," a debt trader in Dublin said.
"The PMIs were not conclusive enough to budge prices and the data therefore are being largely ignored. We are seeing some profit-taking by European accounts. But we might get another test of last week's highs if the euro zone (consumer confidence) data comes in weaker than it already has been this year," he added.
Bund futures were well supported after rallying on Friday to an all-time peak for a third successive session as demand for safer haven assets remained strong given a deteriorating global economic backdrop.
The September Bund future FGBLc1 was down 15 ticks on the day at 132.74 at 1130 GMT. On Friday, the contract peaked at 133.02.
The euro zone economy has fared better than those of the United States and Japan, driven higher by German second quarter GDP running at its fastest rate of growth in two decades and the Bundesbank upgrading its 2010 full year growth forecast to 3.0 percent from 2.0 percent.
But Bund investors reckon that a U.S. slowdown will later impact adversely on euro zone growth too, providing fuel for Bund buying.
"The last two months have seen a sharp rally in fixed income markets where falling yields have not deterred investors from buying. We believe that the recent rally in 10-year Bunds is overdone and a correction is now overdue," Nishay Patel, a bond analyst at Citi in London, said.
Patel said investors should sell Bunds, targeting a 10-year yield of 2.65 percent.
The two-year Schatz yield DE2YT=TWEB was up 0.6 basis points at 0.621 percent. The 10-year Bund yield DE10YT=TWEB was up 2 bps at 2.268 percent.
APPETITE FOR EURODEBT HELPS BELGIAN SALE
But it was not only German Bunds enjoying investor interest. Semi-core sovereigns like Belgium also benefited from euro zone bond buying.
At an auction of three lines of Belgian OLOs, the 2013, 2020 and 2022 OLOs, the 10-year issue was tendered with a euro lifetime low average yield of 2.929 percent.
The debt agency skewed allotment towards the two longer-dated maturities, taking advantage of dramatic yield falls since last week in ultra-long issues. For the 2022 OLO, the average yield dropped by 80 basis points since the Feb. 22 tender to 3.046 percent. Table [ID:nLDE67M0EB]
With the United States looking to issue up to $109 billion of debt this week versus the euro zone's 4.55 billion euros, prospects are trickier for U.S. sales and may favour flows into euro zone bonds anyway.
So far, U.S. debt underperformed Bunds, with the 10-year U.S. Treasury/German Bund spread at 33 bps versus 30 bps on Friday US10YT=RRDE10YT=RR.
