September 13, 2012 / 6:11 AM / 5 years ago

EURO GOVT-Bunds steady before Fed, Italian sale

LONDON, Sept 13 (Reuters) - German government bonds were little changed in early trade on Thursday, holding near multi-month lows hit the previous day when investors’ appetite for risk picked up after Germany’s top Court gave the go ahead to the euro zone’s rescue fund.

Market activity may be limited before the U.S. Federal Reserve’s policy announcement at 1630 GMT, with the central bank likely to launch a third round of bond purchases - or quantitative easing, dubbed “QE3” - to try and breathe life into the sluggish economy.

“It will be a massive disappointment if they don’t do anything, we’re looking for QE3 and some extension of the zero interest rate policy,” a trader said.

“If we don’t get that it’s probably going to be another excuse for Bunds to sell off.”

German Bund futures were three ticks lower at 139.52.

Markets have been in a buoyant mood after the move by Germany’s Constitutional Court which cleared the way for the European Central Bank to buy the bonds of struggling countries in the region.

Italy will sell up to 4 billion euros of its July 2015 bond and up to 2.5 billion euros of 2017 and 2026 paper - with the latter the longest maturity conventional bond the country has tried to sell in over a year.

“(It‘s) a sign that the Tesoro is confident that the recent market imbalances have reduced somehow,” Annalisa Piazza, market economist at Newedge Strategy, said in a note.

“Demand at today’s BTP auction will be an important test after market dealers’ confidence on a possible solution of the debt crisis seems to have taken the right direction.”

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