Before ECB President Mario Draghi's news conference at 1230 GMT, Spain -- the country seen most at risk of needing ECB support -- will sell up to 3.5 billion euros of bonds in an auction expected to go without problems after recent falls in yields.
Spanish yields fell further after dropping sharply on Wednesday -- although the short end underperformed longer maturities before the sale -- after a media report said the ECB planned to buy unlimited amounts of short-term debt.
Two central bank sources told Reuters on Wednesday Draghi would give no details of planned amounts or explicit targets for spreads or interest rates, but with expectations for the meeting so high there was room for disappointment if Draghi does not come up with specifics.
"We've already had very good performance at the short end of Spain and Italy over the last couple of days and the leaks have created a situation where the ECB really has to live up to that now," said Norbert Aul, rate strategist at RBC Capital Markets.
"Our expectation is that we get some more information but not all the parameters today, so if the market is looking for even more than the leaks suggested already then the potential for disappointment is definitely there."
December Bund futures were 66 ticks lower at 140.73, with 10-year German yields up 6 basis points at 1.48 percent.
With interest rates set to remain low for a long time, pinning shorter-dated bond yields down, any further selling pressure on safe-haven German bonds is likely to come in longer-dated maturities, leading to a steepening of the yield curve
If the ECB delivers more than the market expects, 10-year yields could test the top of the recent range around 1.60 percent. But if Draghi only confirms what has been leaked already, Bunds may have some scope to pare their recent losses over coming days, analysts said.
One trader said the deteriorating euro zone economy would also help cap any losses. Purchasing Managers' Index data released on Wednesday showed the economic rot that began in smaller peripheral euro zone countries was now taking hold in Germany, something expected to be confirmed by the central bank's forecasts.
"The leaks mean (the meeting) could be an anti-climax. The shock and awe has gone but there is a risk (Draghi) may not be detailed enough," a trader said.
"Spain and Italy still have to ask for help so I'm not convinced we're out of the woods yet. The periphery can continue to rally but the ECB's growth forecasts are likely to paint a pretty grim picture so Bunds are probably not going to fall too far."
The recent rally in Spanish bonds, which has seen two-year yields fall from near 7 percent to just 3.15, is expected to help the auction. Spain will sell bonds with maturities of up to four years with primary market dealers ensuring the country gets the cash.
Markets will focus on how much excess demand there was above the amount on offer and the "quality" of the bids placed.
"Fully covered auctions at the top end of the target range should spur hopes in the morning that the ECB can kick-start demand," Commerzbank strategists said in a note.
France will also return to the market with the sale of up to 8 billion euros of debt, including a new 15-year bond .
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