EURO GOVT-Bunds steady as investors brace for Spanish sale, ECB

LONDON, March 7 Thu Mar 7, 2013 2:23am EST

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LONDON, March 7 (Reuters) - German Bunds were steady on Thursday, with the European Central Bank expected to hold interest rates and abstain from action to help Italy amid widespread political uncertainty there, while investors also awaited a Spanish debt auction.

Spain will issue 4 to 5 billion euros of paper maturing in 2015, 2018 and 2023. The sale should find decent demand as investors, looking for a return in higher-yielding assets, still find comfort in the ECB's promised bond-buying program.

Political uncertainty in Italy following an inconclusive election has led some investors to favor Spanish debt, narrowing the 10-year yield spread between the two to its tightest since May 2012 this week. That should also provide a favorable backdrop to the auction.

German Bund futures were little changed on the day at 145.14, but analysts said there was further upside if ECB President Mario Draghi was more downbeat on the euro zone's prospects than expected.

"I still think that Bunds will benefit from a slightly - not dovish Draghi, but one that will exacerbate the negatives ... by expressing his concerns about growth in the euro area," Michael Hewson, senior market analyst at CMC Markets said.

The ECB is seen holding rates at a record low of 0.75 percent.

Draghi is also expected to say there is no question of loosening the central bank's rules on bond-buying to accommodate Italy, according to analysts.

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