LONDON: Bund futures extended recent losses on Thursday with European equities poised for a higher open on expectations of more monetary stimulus while this week's ratings warning reminded investors of the challenges the debt crisis poses to Germany.
Ahead of the European Central Bank and the Federal Reserve's monetary policy meetings next week, speculation for further policy action was already swirling even though such hopes have been disappointed in the past.
Such bets gave a bid to stock markets, taking the shine away from German Bunds, which also struggled with an ultra-long bond auction on Wednesday.
Bunds edged 7 ticks down on the day to 144.62, and were poised for their first week of losses after four weeks of consecutive gains.
"For now we will be slightly risk positive, although I don't agree," a trader said. "It's more based on hope than anything else that (central banks) are going to do something."
"It's thin, it doesn't take much to move stuff. A lot of people are away, much of that could get worse over the (London) Olympics. Volatility could increase and volumes could go down in the next couple of weeks quite notably."
Investors would continue to keep an eye on short-dated Spanish borrowing costs that rose sharply this week, briefly inverting part of the Spanish yield curve.
There are concerns that Spain could begin to struggle to fund itself in the debt market, which would send jitters across the euro zone and would likely hit investor confidence in Italy.
The Italian Treasury will offer up to 2.5 billion euros of zero-coupon bonds (CTZs) at its regular end-month auction later in the day.
It bought back 1.33 billion euros of four inflation-linked bonds on Wednesday in a move aimed at easing pressure on these assets following a ratings downgrade that will force them out of some bond indexes.
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