Wed Jul 31, 2013 3:55am EDT
* Germany to sell 2 billion euros of 30-year debt
* Higher yields seen helping demand at the auction
* Post-auction focus seen on U.S. data, Fed decision
By Emelia Sithole-Matarise
LONDON, July 31 (Reuters) - German bond prices fell on Wednesday as investors made room in their books for new 30-year Bunds to be auctioned later in the day in a cautious market before a U.S. Federal Reserve policy decision.
Germany will offer up to 2 billion euros of 30-year paper which market participants expect to go smoothly with investors enticed by a 50 basis point back-up in yields from early May lows of just over 2 percent. Month-end related buying was also seen supporting demand for the sale.
German 30-year yields were last 3 basis points higher at 2.51 percent while 10-year Bund yields were up by a similar amount at 1.70 percent.
"We are seeing Bunds under a bit of pressure before the 30-year supply. It's just concession building before the auction but after that it's all about the Fed," a trader said.
Bund futures were last 39 ticks down on the day at 142.07, with other traders saying buyers were also holding off before the Fed's policy meeting, which could provide clarity on the outlook for its stimulus measures.
Investors are waiting to see whether the Fed still plans to reduce its bond purchases later this year, and for guidance on how long it will keep interest rates at record low levels. The world's biggest economy has shown signs of improving growth although unemployment remains naggingly high.
Before that, focus will be on U.S. second-quarter growth and private sector employment data that could give markets a steer on the strength of the economic recovery.
"On the U.S. GDP data, the risks are for a slightly weaker outcome which would be positive for core bonds but ahead of the FOMC the reaction might be muted," said Mathias van der Jeugt, a strategist at KBC in Brussels.
Italian 10-year yields were flat at 4.41 percent with Spanish equivalents also steady at 4.62 percent .
Italy sold all it wanted at a long-term debt auction on Tuesday as investors shrugged off concerns about an upcoming court ruling against former Prime Minister Silvio Berlusconi.
The treasury placed 6.75 billion euros ($9 billion) of five- and 10-year bonds at lower yields compared to the previous sale.
Italy's supreme court heard Silvio Berlusconi's last appeal against a jail sentence and ban from public office for tax fraud. A ruling against the former prime minister could plunge Italy's government into crisis and bring renewed uncertainty to the euro zone third's largest economy.
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