EURO GOVT-Bunds rangebound as investors cautious before Fed
* German Bunds rise in tight ranges before Fed
* Lower-rated euro debt also little changed
* Fed seen leaving door open for data-dependent tapering
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, June 19 (Reuters) - German Bunds rose in thin trade on Wednesday but remained within recent tight ranges as investors were reluctant to take big bets before the outcome of a two-day Federal Reserve meeting.
Fed Chairman Ben Bernanke last month signalled the U.S. central bank could soon curb its asset buying as the economy gathered pace, hurting equity and bond markets.
If he maintains a similar tone on Wednesday, 10-year Bund yields are likely to rise, although traders and analysts say it will be hard for them to break above 1.75 percent, the top end of a 60 basis point range that has held for more than a year.
The reason for that is the downbeat outlook for the euro zone economy and worries that lower-than-expected liquidity in the market may hit lower-rated bonds and in turn increase demand for safe-haven German debt.
"I expect Bernanke to (prepare) the market for tapering later in the year," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
"Treasury and Bund yields ... could drift higher over the coming weeks or months in that case. But to reach levels of 2 percent you would need far greater traction in the euro area economy."
Benchmark 10-year German yields were last 2 basis points higher on the day at 1.55 percent, roughly in the middle of a tight 15 bps range seen in the past week. Bund futures rose 33 ticks to 143.54, having fallen by about half a point on Tuesday.
Traders said many investors stayed on the sidelines and low volumes were exacerbating moves. By 1500 GMT, the number of lots traded in the Bund futures market was less than 500,000, versus a daily average of over a million in June, Reuters data shows.
"Everyone is a bit cautious given there is not only uncertainty to what Bernanke is going to say ... but also how the market will interpret any comments," said Michael Leister, senior interest rate strategist at Commerzbank.
A 4 billion euro sale of 10-year German debt had little market impact. It attracted bids worth 1.5 times the amount on offer, slightly less than 1.6 at an auction in May.
Lower-rated euro zone debt was also rangebound. Ten-year Spanish yields were 3 bps lower at 4.53 percent and the Italian equivalent was down by a similar amount at 4.26 percent.
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