LONDON, April 24 Spanish and Italian bonds edged up from their lowest levels in more than eight years on Thursday before chunky debt sales by the two countries that should help them complete about 40 percent of their funding programmes for this year.
Selling pressure in secondary markets before auctions is common as investors make room in their books for the new paper.
The sales are widely expected to go smoothly as the possibility that the European Central Bank may eventually attempt to fight low inflation with an asset purchase programme keeps demand for high-yielding debt intact.
ECB President Mario Draghi is due to hold a keynote speech in Amsterdam at 0900 GMT and traders said the pullback in yields was capped by the likelihood that he will reinforce expectations of a quantitative easing programme.
Spanish 10-year yields rose 2 basis points to 3.07 percent, while Italian 10-year yields added a similar amount to 3.10 percent. Both remained within touching distance of recent lows.
"We certainly see some supply pressure ... (but) overall investors are still craving for yield pick-up as you have ongoing speculation about QE," said Christian Lenk, a strategist at DZ Bank.
Spain plans to sell as much as 5.5 billion euros in three-, five- and 10-year bonds. Italy plans to sell up to 5 billion euros of zero-coupon and inflation-linked bonds later on Thursday, as well as up to 9 billion euros of bonds at its regular end-of-the-month auction on April 29.
The sales come a day after Portugal's first bond auction in three years, at which Lisbon paid a record low yield that was seen as a boost to its chances of making a clean exit from its bailout programme next month.
The favourable market environment has allowed Rome and Madrid, once at the sharp end of the euro zone crisis, to build a financial cushion. Italy has already completed 37.6 percent of its 2014 debt issuance plans, while Spain has reached 38.8 percent of its target.
Some analysts say the duo's significant funding progress makes the roughly one percentage point drop in their 10-year yields this year even more impressive, although others caution that the first two quarters have historically been busier in terms of issuance activity.
Fitch is due to reassess the BBB rating of Spain and BBB+ rating of Italy on Friday. Analysts expect at least the negative outlook on Italy's rating to be changed to stable, although they do not rule out rating upgrades on the back of their improved access to funding.
"We have to deal with a fair amount of supply from the periphery so there might be some pressure today but bigger picture we still like it and we see any pullback as a buying opportunity," one trader said. (Reporting by Marius Zaharia; Editing by John Stonestreet)