EURO GOVT-Spanish bonds steady awaiting bailout signals
* Spanish, German bond yields locked in tight ranges
* Trading activity light as Spanish bailout remains key issue
* Low expectations of breakthrough at EU leaders' summit
By William James
LONDON, Oct 15 (Reuters) - Spanish and German bond prices moved in narrow ranges early on Monday as traders waited for signals on Spain's willingness to request an international bailout, with many investors opting to stay on the sidelines.
A Spanish bailout request could come next month according to euro zone officials, one of whom said talks on a potential aid programme were advancing.
However, market participants remain unwilling to make big bets while Madrid publicly resists pressure to seek external help to solve its debt problems, citing improved investor sentiment towards Spanish bonds.
Thanks to the European Central Bank's pledge to buy the country's bonds if it requested a bailout, Spanish yields have fallen far below the unsustainable highs of more than 7.5 percent seen in July, allowing them to borrow at more affordable, albeit still-high, rates.
Spanish 10-year bond yields were flat on the day at 5.65 percent -- towards the lower end of the roughly 50 basis point range traded since the ECB confirmed its bond-buying intentions in early September.
Technical analysis from Commerzbank suggested the yield could slide back to 5.216 percent 2010-2012 support line having failed to break above its 200-day moving average last week.
The German Bund future fell 14 ticks to 141.56, but was seen unlikely to break out from between 141 and 142 until policymakers shed more light on the outlook for Spain.
"The Bund is being bought toward 141 and sold again when we get close to 142," a trader said.
"People aren't willing to go risk-off because the bond-buying plan is in the background and they're not willing to go risk on because Spain hasn't applied for the bailout yet."
A summit of European Union leaders later this week was seen as unlikely to shed new light on Spain's situation, and market participants said few were building up positions anticipating a breakthrough at the meeting.
"Looking at what they're scheduled to talk about at the summit... there's nothing not much scope for expectations to get proven wrong," said Credit Agricole strategist Peter Chatwell.
"It's very difficult to take a position so if anything we could see thin volumes this week as participants reduce exposure and try not to take on any additional exposure."
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