OREANDA-NEWS. March 19, 2015. German yields slipped on Wednesday before a sale of 10-year Bunds that is expected to draw strong demand in a market starting to fret about bonds getting scarce as ECB asset purchases begin.

A rebound in 10-year yields from last week's record lows is also expected to draw some investors into the euro zone's most liquid market, to position themselves for a quick profit from bonds bought in primary markets.

Analysts said data on Monday showed the European Central Bank bought fewer bonds last week than the market had expected, but concern remained the purchases will lead to a shortage of top-rated debt, especially Bunds.

The ECB has set rules against buying newly issued debt or bonds of a similar maturity around the time of auctions, although details remain vague.

Germany aims to auction up to 4 billion euros of Bunds later in the day. Ten-year yields were 1 basis point lower at 0.27 percent. They have risen 10 basis points from last Thursday's record low of 0.188 percent as ECB purchases slowed this week.

"It (the auction) should be fairly well-received because we have retraced about 50 percent of last week's rally so the yield levels look attractive again," Commerzbank strategist Michael Leister said.

He and other strategists said the auction could also benefit from investors switching out of debt issued by German state development bank KfW, whose yields have fallen to parity or slightly below those of Bunds, into the 10-year Bund.

"The supply and demand imbalance is clearly triumphing over fundamentals ... We would be surprised if KfW traded at a persistent and significantly lower yield to Germany -- the sovereign that ultimately and explicitly guarantees the credit," Citi strategists said in a note.

"Given such historically rich valuations, we would therefore rather be in the more liquid Bund."

Peripheral euro zone bond yields were a touch higher. The market was digesting new 15-year debt from Italy and keeping a cautious eye on the tension between Greece and its European Union partners.

At a scheduled teleconference on Tuesday, Athens refused to update the rest of the euro zone on the progress of its reforms, insisting instead that discussion should held at an EU summit on Thursday.

Two-year Greek yields have risen to one-month highs on growing fears the country is running out of time to implement reforms that would unblock loans it needs to keep from defaulting.