* Memories of 2015 disappointment resurface
* ECB expected to extend QE, pace unknown
* Tweaks needed to keep smooth money-printing
* Without changes, Ireland could be cut from QE in Jan
By John Geddie
LONDON, Dec 8 Euro zone government bond yields
crept higher as investors waited to see whether the European
Central Bank would meet their high expectations for fresh
stimulus at its final meeting of the year on Thursday.
The ECB is broadly-expected to extend its asset purchase
programme for at least another six months, and make tweaks to
keep the 1.4 trillion euros scheme running smoothly.
But it remains to be seen whether the central bank will
maintain its current 80 billion euro monthly purchase rate, or
even send a token signal about the eventual end of quantitative
easing (QE) in a concession to more conservative policymakers.
This uncertainty has rekindled memories of the ECB's final
meeting of 2015 which jolted markets after President Mario
Draghi could not live up to easing hopes, sending the euro on
its biggest daily surge for nearly seven years.
"The ECB will have to walk the talk this time and take
decisive action on QE," Commerzbank analyst Michael Leister
"Draghi is facing a serious challenge though as market
expectations for an extension of the program meet the Governing
Council's QE fatigue."
German 10-year government bond yields sneaked up 1 basis
point (bps) to 0.35 percent on Thursday having
briefly touched a near 11-month high of 0.40 percent in the
early hours of Wednesday, according to Tradeweb data.
Most other euro zone yields were 1-2 bps higher on the day,
and the euro strengthened slightly against the dollar.
If the ECB extends purchases, as predicted by economists
polled by Reuters, it will likely need to change some of the
limits that currently restrain the programme.
The first of those is the possible removal of the lower
yield limit for purchases -- currently set at the ECB's deposit
rate of minus 0.40 percent -- which has at various points over
the last year raised concerns that the central bank may run out
of German bonds to buy, where the most purchases are centred.
It could also change or signal deviation from the model used
to dictate how purchases are divided between countries, known as
the capital key.
However, data shows this model has not been rigorously
applied anyway due to restrictions in certain countries, so an
increase to the volume of a country's debt and individual bonds
may be more likely.
Calculations by Cantor Fitzgerald showed this week that
without such changes, the ECB would run out of Irish bonds to
buy in January.
In a sign of how politically sensitive this could be, the
Irish Times on Wednesday ran the story headed: "Ireland faces
ECB bond-buying guillotine if Draghi doesn't budge."
Finally, the ECB has signalled it is looking for ways to
lend out more of its bonds to avert a squeeze in short-term
funding markets known as repo markets, suggesting more
attractive terms to its securities lending programme will be
(Editing by Ralph Boulton)