EURO GOVT-Italy debt up as yield hunt trumps political concerns
* Italian, Spanish yields edge lower across the curve
* Hunt for yields helps Italy bonds during political crisis
* Bunds drop, but stay near recent highs
By Emelia Sithole-Matarise and Marius Zaharia
LONDON, April 19 (Reuters) - Spanish and Italian bond prices rose on Friday, outperforming German Bunds with more gains seen near term as investors' hunt for higher yields trumped concerns that new elections could impede economic reforms.
The accommodative monetary policies of the world's largest central banks have pushed global bond yields lower, with investors keen to maximise returns willing to accept further delays before Italy gets a new government.
A standoff between former prime minister Silvio Berlusconi's centre-right party and the main centre-left's choice of ex-premier Romano Prodi as its presidential candidate has increased the likelihood of a snap election in the summer.
Prodi was chosen after splits within the centre-left led to two unsuccessful votes for its initial candidate Franco Marini on Thursday, prolonging the stalemate produced by an inconclusive result in general elections in February.
Marini was backed by both centre-left leader Pier Luigi Bersani and Berlusconi, and a favourable vote for him would have been a sign that the two sides can eventually agree on the formation of a new government.
Italian 10-year yields were 2 basis points lower at 4.23 percent with Spanish equivalents 3 bps down at 4.63 percent. Shorter-dated yields also fell, with analysts pointing to a hunt for yield in a very liquid market.
"The main driver in the market is the central bank easing around the world. The Bank of Japan easing was a theme changer that had an impact on global markets and any potential easing will also be very good for risk-taking," said Ciaran O'Hagan, a strategist at Societe Generale.
Bonds showed little reaction to the announcement of Prodi's candidature or to its rejection by the centre-right. Some analysts said Italian bonds are even likely to outperform other peripheral bonds in the future.
"Investors remain relatively constructive on Italy, and not only Italy - Spain, Portugal and Ireland as well. Italy has lagged (the other high-yielding markets) since the start of the year and it has the potential to outperform," BNP Paribas rate strategist Patrick Jacq said.
Portuguese bonds were among the standout performers in the euro zone's periphery, with 10-year yields down 8 bps at 6.08 percent -- taking them nearer the 2013 low of 5.88 percent.
Portugal's borrowing costs have been resilient to growing pubic protests against austerity, suggesting investors still believe the European Union will make the country's bailout work.
German Bunds were lower on the day, but stayed close to their recent highs as demand for relatively low-risk assets persisted alongside the appetite for yield.
Renewed global growth worries after recent weaker-than-expected U.S. economic data and the political uncertainty in Italy remained a major supporting factor for Bunds, traders said.
Bund futures were 23 ticks lower at 146.03. The contract's April's peak of 146.54 was its highest since June 2012. Cash 10-year Bund yields were 2 bps higher on the day at 1.25 percent.
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