RPT-EURO GOVT-Italian, Spanish debt under pressure; Bunds rally

Thu Jul 14, 2011 7:24am EDT

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LONDON, July 14 (Reuters) - German Bund futures hitsession highs on Thursday as Italian and Spanish government debt came under pressure with a successful BTP auction failing to change market view that bigger peripheral euro zone states are being sucked further into the debt crisis.

Italian 10-year government bond yields rose 18 basis points on the day to 5.75 percent, pushing their spread over benchmark German Bunds out 12 bps to 305 bps.

The spread had been under 300 bps just after Italy sold almost 3 billion euros in five- and 15-year bonds. Spanish yields rose 14 bps to 5.98 percent.

"The Italian auction was well covered but at a price...A bad auction would have seen a much sharper selloff but a good auction does little to allieviate what is really the heart of the matter," said Richard McGuire, strategist at Rabobank in London.

German Bund futures jumped as much as 52 ticks on the day to a session high of 128.87. It last traded up 34 ticks at 128.69.

(Reporting by Emelia Sithole-Matarise and William James)