German debt sale lifts long-term Bunds before Fed decision
* Germany sells 1.63 bln euros of 30-year bonds
* Higher yields help demand at auction
* Focus turns to U.S. data, Fed decision
By Emelia Sithole-Matarise
LONDON, July 31 (Reuters) - German long-dated bonds rallied on Wednesday after a sale of 30-year Bunds met solid demand though gains were capped in cautious trade before a Federal Reserve policy decision later in the day.
The sale of 1.62 billion euros of 30-year bonds drew bids for 1.6 times the amount allotted, compared with 1.5 times at a previous sale of the bonds in April.
Investors were drawn to the sale by a 50 basis point rise in yields since early May. Month-end related buying also supported demand, some traders said.
In the secondary market 30-year yields were flat at 2.48 percent, off a low of 2.45 percent. Ten-year Bund yields also fell before reversing in choppy trade to stand 2 bps higher at 1.69 percent.
"It was a good auction given that the Fed is looming and the market has taken a favourable view," Commerzbank rate strategist Michael Leister said.
"There's room for the ultra-long end to perform as well. We've seen quite a decent steepening of the 10/30s curve and overall it still looks steep, so there might be some interest to put on tactical trades with the supply out of the way."
Bund futures fell 13 ticks to 142.32 before the U.S. data and Fed statement, which will be scoured for clues to when the central bank will slow its stimulus.
ALL ABOUT THE FED
Investors want clarity on whether the Fed will start reducing its $85 billion a month bond purchases later this year, and on how long it will keep interest rates at record lows.
The Fed statement will come after U.S. second-quarter growth and private sector employment data that could give markets a steer on the strength of the economic recovery.
"It's all about the Fed and after that the European central banks tomorrow," one trader said.
"People are going in looking for some sort of dovish support from central banks in terms of rates not going up for a long time. Maybe that's the risk: that the Fed aren't that clear on forward guidance in terms of rates."
Italian 10-year yields were tad lower at 4.41 percent, slightly extending Tuesday's falls on a strong auction.
Investors shrugged off concerns about an upcoming supreme court ruling on former prime minister Silvio Berlusconi's last appeal against a jail sentence and ban from public office for tax fraud. A ruling against him could endanger the shaky coalition government.
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