* ECB expected to keep rates unchanged, no steer on Spain
* Spanish yields flat before bond auction
* Focus on level of demand for long-dated Spanish bonds
By Emelia Sithole-Matarise
LONDON, Nov 8 German Bund futures held near
two-month highs on Thursday, underpinned by investor concerns
over a looming U.S. fiscal crisis but activity was seen subdued
before a European Central Bank policy decision.
President Barack Obama is facing a political showdown with a
divided Congress over the so-called "fiscal cliff" of about $600
billion in expiring tax cuts and spending reductions due to take
effect in January.
Some analysts warn the cutbacks could hit the U.S. economy
harder than expected, adding to European Commission warnings
about anaemic growth in the euro zone and refueling demand for
low risk government bonds.
"The global environment has turned favourable for core bond
markets and the EU forecasts for next year are rather gloomy,
that's why we saw some (peripheral euro zone bond) risk-off
moves," Patrick Jacq, a strategist at BNP Paribas, said.
The Bund future was last one tick up at 142.76
compared with 142.75 at Wednesday's settlement, its highest
level since Sept. 6 and was likely to remain around there on
caution before the ECB's rate decision.
The central bank is expected to leave interest rates on hold
at a record low 0.75 percent but comments by President Mario
Draghi on Wednesday, on the weak growth outlook, as well as
gloomy forecasts from the European Commission have raised
speculation that the ECB may signal more willingness to ease in
the next few months.
German 10-year yields were unchanged on the day at 1.38
"As much as the ECB won't do anything today you've got to
think that given the way the data is going we're certainly
looking for a rate cut before the end of the year," a trader
Traders and strategists expect little steer from Draghi at
his post-meeting press conference on Thursday on the ECB's new
bond purchase scheme before a decision by the Spanish government
to request euro zone aid. Such a request would trigger central
Before the ECB policy decision, market participants' focus
will be on a Spanish auction of 3.5 to 4.5 billion euros of
bonds including a new five-year bond and 20-year debt - the
longest-dated issue to be sold at an auction since mid-2011.
The sale is expected to go smoothly with some bond
repayments the previous week expected to be reinvested into the
new issuance and after the Greek parliament approved, as
expected, austerity measures needed to unlock vital aid and
Spanish 10-year bond yields were flat at 5.72
percent before the auction, which will see Madrid clear its 2012
issuance needs, a move some analysts say could make Prime
Minister Mariano Rajoy delay making the aid request.