EURO GOVT-Bunds fall as investors brace for German, Italian supply

LONDON Wed Jan 30, 2013 2:11am EST

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LONDON Jan 30 (Reuters) - German Bund futures opened lower on Wednesday as investors made room for a sale of long-dated German paper and braced for solid demand at an Italian debt auction.

Italy will offer up to 6.5 billion euros of bonds maturing in 2017 and 2022. Traders expect the sale to benefit from yield-hungry investors but flagged the risk of indigestion after a bout of buying in recent months that triggered a sharp rally.

"(The auction) probably (goes) alright but I don't think it trades well afterwards," one trader said.

German Bund futures were 16 ticks lower on the day at 141.66, as U.S. Treasuries also came under pressure overnight.

The market cheapening and rise in yields is likely to benefit a sale of 30-year German paper, which is also expected to benefit from bids from institutional investors who need to match long-term pension and insurance liabilities to secure assets.

After the supply is out of the way, investor attention will fall on the outcome of the Federal Reserve policy meeting which comes after the European market close.

The Fed is expected to maintain asset buying at $85 billion a month and retain the commitment to hold interest rates near zero percent until the unemployment rate falls to 6.5 percent, provided inflation does not threaten to breach 2.5 percent.

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