Italian bond yields fall before debt buyback

LONDON Tue Dec 10, 2013 3:20am EST

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LONDON Dec 10 (Reuters) - Italian government bond yields inched lower on Tuesday before a debt buyback that should ease Rome's refinancing burden over the next three years.

The buyback follows a swap of 2015 and 2017 bonds for 2018 paper last month and the cancellation for December of a regular mid-month auction after Italy secured a bigger-than-expected take-up of inflation-linked bonds at a sale aimed at retail investors earlier this year.

The Italian Treasury plans to buy back floating rate notes (CCTs) maturing in Dec. 2014 and Sept. 2015, fixed rate bonds (BTPs) maturing in March 2015 and April 2015 and bonds linked to euro zone inflation (BTPEIs) maturing in Sept. 2017.

Italy and Spain, the two big euro zone economies that have been at the sharp end of the euro zone crisis, have already hit their 2013 funding targets.

Encouraged by signs of economic stabilisation, as well as by the European Central Bank's crisis backstops and ultra-easy monetary policy, investors have snapped up the two countries' bonds, almost halving their yields from crisis peaks.

Italian 10-year yields fell 3 basis points on the day to 4.12 percent, while equivalent Spanish yields fell by a similar amount to 4.10 percent.

"There is a lack of supply and some accounts are taking advantage of that," said Jan von Gerich, fixed income chief analyst at Nordea in Helsinki.

Rabobank's senior market Elwin de Groot in Utrecht said the fact that Italian bonds were not clearly outperforming their Spanish counterparts despite the planned buyback reflected the fact that investors were more sanguine about Madrid's outlook.

"In Spain, the (political) situation is much more stable and the signs that the economic recovery is gaining pace are much more clear ...than in Italy," de Groot said.

German Bund futures rose 3 ticks to 140.12 and cash 10-year German yields were flat at 1.84 percent.

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