LONDON: German Bund futures were steady on Thursday, with investors reluctant to take big positions before an European Union summit that starts later this session and an Italian auction that will test market sentiment in a difficult environment.
European Union leaders go into the two-day meeting in Brussels more openly divided than at any time since the debt crisis erupted in Greece in 2010 and spread over the euro zone. .
Before the summit, the market will test appetite for Italian debt with up to 5.5 billion euros in five- and 10-year bonds. The Treasury is likely to have to pay dear to get the bonds away against the current backdrop, even though domestic investors are seen supporting demand.
"There seems to be a good division (between euro zone member states)... If we get some sort of roadmap for the future great, it's not going to address the imminent problems," one trader said.
The German Bund future was up 6 ticks at 141.17, after two consecutive days of losses.
The contract could rebound if the summit disappointed market expectations, which are already low given the disparity between Germany and other member states on issues like common bond issuance and a more flexible use of the euro zone rescue fund.
"Bunds haven't traded particularly well for a few weeks, but we certainly remain constructive on the Bund market," the trader said.
An underwhelming outcome could put further pressure on Italian and Spanish yields which are drawing nearer to levels beyond which funding costs are considered unsustainable over the long-term.
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