LONDON: The German Bund future eased on Thursday but was expected to remain range-bound as investors braced for a Spanish auction -- a key test of market sentiment for non-core euro zone sovereign debt -- and a European Central Bank rate decision.
Spain's auction of 2015 and 2016 paper is expected to go smoothly given the short-dated nature of the maturities being sold and ample European Central Bank liquidity in the financial system, after December's three-year lending operations.
A successful auction, however, would not be enough to restore confidence on the country's ability to fund itself over the long-term, a trader said.
"It feels like it's set up to be a reasonable auction," the trader said. "We are interested in how the Spanish auction goes but I don't think it's the be all and end all of market sentiment today."
"The risk of a credit-event in Greece is probably more important."
The German Bund future was 8 ticks lower at 139.27 having hit a two-month high in the previous session within sight of the record 139.58 level.
Talks about private sector creditors paying for part of a second Greek bailout are going badly, senior European bankers said on Wednesday, raising the prospect that euro zone governments will have to increase their contribution to the aid package.
The ECB was widely expected to keep interest rates steady at 1 percent later this session, after two consecutive rate reductions and a slew of other measures in recent months. Investors will look to ECB President Mario Draghi's press conference to gauge the bank's outlook on the economy and the crisis.
Markets are looking for any sign the ECB could steer rates into uncharted territory in coming months - most analysts expect a cut in February or March - or whether it is happy to leave them as the economy is showing some tentative signs of life.
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