Tue Oct 22, 2013 6:47am EDT
* Market seen rangebound before delayed payrolls report
* Market reaction could be muted as focus turns to Oct. data
By Emelia Sithole-Matarise
LONDON, Oct 22 (Reuters) - Euro zone bond yields slipped on Tuesday but held within their recent ranges before delayed U.S. jobs data that could shape expectations on when the Federal Reserve will start trimming its bond purchases.
Investors were wary of trading aggressively before the employment report, postponed from its original Oct. 4 release date by the 16-day U.S. government shutdown.
Analysts polled by Reuters expect U.S. nonfarm payrolls to have increased by 180,000 in September, with the jobless rate steady at 7.3 percent.
Many analysts expect the U.S. central bank to maintain its bond purchases at current levels given the as-yet unknown economic impact of the shutdown and the possibility of another bitter budget fight early next year. But a strong employment report could challenge that thinking.
Market reaction to the jobs report may be limited because of the delay in release and the fact that it covers a period before the government shutdown. That may make the October figure - now due on Nov. 8 instead of Nov. 1 - more important for markets.
"I don't think there will be a strong movement on the back of this data," said Patrick Jacq, a strategist at BNP Paribas in Paris. "The market is positioned for signs of economic recovery with limited increase in jobs and a Fed which remains very accommodative."
The prospect of delayed Fed tapering of its monetary stimulus is supporting both safe-haven and riskier assets such as lower-rated euro zone bonds.
Spanish 10-year yields were last down 5 basis points at 4.22 percent, with traders citing some buying from domestic investors but saying volumes were thin. Italian equivalents were 2 bps lower at 4.17 percent.
Yields on higher-rated bonds were also slightly lower while German 10-year yields were unchanged on the day at 1.85 percent, reflecting investor caution before the U.S. data which kicks off a slew of backlogged numbers this week.
RBS strategists said the Bund yields could push back towards a 1.70-1.80 percent range given the supportive backdrop of prolonged Fed monetary stimulus.
The yields fell to their lowest in a week on Friday on concerns the stop-gap deal to raise the U.S. debt ceiling and reopen the government may hurt longer-term prospects economic and deter the Fed from trimming its bond purchases until 2014.
"Investors are unwilling to take outright short positions in core bonds at this stage while they expect a delay of tapering by the Federal Reserve so this is keeping pressure for lower core yields," said ING strategist Alessandro Giansanti.
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