Thu Dec 4, 2014 5:41am EST
(Updates prices)
LONDON Dec 4 (Reuters) - Euro zone bond yields see-sawed above record lows on Thursday as differences over what the ECB may do at its meeting later kept investors guessing.
Some of Europe's largest funds are taking opposing positions ahead of the central bank's monthly meeting, which comes as the bloc's business activity comes close to contractiing and weak oil prices threaten deflation within a year.
While the ECB could extend its asset purchases to buy corporate bonds, it is recent hints from policymakers' of a sovereign-debt quantitative easing (QE) scheme that has inspired the latest leg of bond price rises.
BlackRock's Scott Thiel, who oversees around $100 billion of assets, has trimmed exposure to euro zone benchmark German Bunds and is wary that Italian and Spanish bond markets are also at risk if the ECB disappoints markets on QE on Thursday.
"I don't find it an attractive market at all because it is going to be entirely dominated in the near term by the implementation of a QE programme," he said.
"If it does nothing but foreshadows the implementation without giving more details I would suggest the market is priced for that already."
A Reuters poll of 17 money market traders on Monday found none expecting the ECB to act at Thursday's meeting.
Aberdeen Asset Management's Patrick O'Donnell, however, has been piling on exposure to Italian and Spanish debt in recent days, betting that the ECB could move faster than many expect.
These bonds, which trade at a premium to German Bunds, offer the most potential for outperformance if the ECB starts QE. Morgan Stanley said this premium could be reduced by 40-50 bps in such an event.
ECB Vice President Vitor Constancio has indicated that the ECB might decide as early as the first quarter of next year whether to begin buying sovereign bonds, but economists polled by Reuters still only see an even chance of any such scheme.
German 10-year yields were up 1 bps on the day at 0.75 percent, above record lows of 0.698 hit Monday.
Italian and Spanish equivalents were up by a similar amount to 2.00 and 1.86 percent, respectively, reversing earlier gains.
Demand for Italian bonds was also supported by news that Italian Prime Minister Matteo Renzi won a confidence vote to draw up labour reforms aimed at making a chronically sluggish economy more competitive.
At auction on Thursday, Spain offloaded 3.5 billion euros via a triple-bond sale while France also sold around 4 billion euros of fixed-rate debt. (Editing by Jeremy Gaunt)
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