August 21, 2012 / 6:22 AM / 5 years ago

EURO GOVT-Bunds pause as markets look for ECB signals

LONDON, Aug 22 (Reuters) - German Bund futures were steady on Tuesday with markets focusing on the prospect of European Central Bank intervention in bond markets to contain Spanish borrowing costs but a lack of detail of how this might happen stemmed the recent sell-off.

Ten-year Bund yields have tested the 1.60 percent upper limit of their three-month range over the past days but have so far failed to break above it, suggesting selling pressure may ease in the absence of further developments in the debt crisis.

September Bund futures were 5 ticks lower at 141.95.

Spain will sell up to 4.5 billion euros of 12- and 18-month T-bills against a favourable backdrop after the country's debt rallied on Monday.

"We expect Spain to continue outperforming Italy especially in the short end on continued expectations of...(the) EFSF (bailout fund) and ECB support," RBS strategists said in a note.

The ECB however tried to quash speculation that it would target specific interest rate thresholds as part of any bond-buying programme.

"The (central bank's) statement did not precisely imply that such an option has been ruled out and rather reflected the notion that there are very divergent views within the ECB on this topic," Commerzbank strategists said.

"As such it should not deter markets from continuing to build on hopes that the ECB and EU are working on larger scale interventions."

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