EURO GOVT-Italian yields rise as investors take profit
* Italian yield rise considered a correction not new trend
* Italian bond prices fall despite strong auction
* Bunds rise but hold near six-week lows
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, May 13 (Reuters) - Italian bond yields rose on Monday as investors overlooked a strong debt auction and cashed in on hefty gains made over the past month but analysts said the move was a correction rather than a new trend.
Italy sold 8 billion euros ($10.4 billion) of three- and 13-year bonds, with borrowing costs for the short-dated paper at their lowest since January and demand levels holding firm.
Benchmark 10-year yields in secondary markets, however, continued to rise, last trading 7.9 basis points higher on the day at 3.98 percent. Italian borrowing costs fell over 70 bps in April.
"When we look at 10-year yields in Italy we can see that we had a (roughly) 100 basis point drop over one month which is huge so it seems logical to have some kind of correction or at least some consolidation," Cyril Regnat, fixed income strategist at Natixis.
Nick Stamenkovic, bond strategist at RIA Capital Markets, said the correction was not the beginning of a trend.
He said 10-year yields above 4 percent in Italy and 4.40- 4.50 percent in Spain would probably lure investors back in.
Traders said the profit-taking moves which have pushed Italian and Spanish 10-year yields about 20 basis points higher in the past week have also been triggered by speculation that Spain may launch a syndicated debt sale in the near future.
The Spanish government has not commented, but market talk persists after strong syndicated debt sales by Portugal and Slovenia earlier this month.
"There is quite a lot of talk about issuance in Spain... but I don't think there is anything concrete and that has been out there for a while," one trader said.
Appetite for lower-rated euro zone debt has been strong this year as ultra-easy central bank policies have pushed investors towards riskier assets in search of higher returns.
Spanish 10-year yields were 8 bps higher at 4.29 percent
At the other end of the credit spectrum, German Bund futures were 23 ticks higher on the day at 144.89, after matching Friday's six-week low at 144.43 at the open.
Comments by ECB governing council member Ignazio Visco that the central bank could cut the deposit rate into negative territory eased expectations that a run of better economic data could put the ECB off further easing. ($1 = 0.7709 euros)
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