(Corrects surname in 11th paragraph)
* Italy to sell 5.5-7.5 bln euros worth of bonds
* Yield-hungry bidders expected to snap up bonds
* Bunds, Italian bonds steady; French yields resume fall
By Marius Zaharia
LONDON, April 11 Italian bond yields held steady
on Thursday before a debt auction expected to draw solid demand
as investors seek higher-yielding assets on prospects of further
monetary easing by major central banks.
Expectations for a European Central Bank rate cut and the
Bank of Japan's plans to print unprecedented amounts of money to
stimulate the economy have pushed investors to take on more risk
in recent days in search of higher returns.
Italian 10-year yields, down more than 50
basis points since late March, held at 4.3 percent, near their
recent lows, and some 15 bps lower than the session before the
country's inconclusive Feb. 24-25 elections.
Usually yields tick higher in secondary markets before a
country sells debt as investors make room in their books for the
new supply, but Italian bonds stayed strong.
The heavily indebted euro zone member, which is still
struggling to form government, will offer 5.5-7.5 billion euros
of a new three-year bond, a 15-year bond and a five-year
floating rate note later in the day.
Investors doubt Japanese investors trying to switch into
higher-yielding, non-yen assets will be willing to take the risk
of holding Italian bonds given the political crisis there.
However, the anticipation of flows from Japan to assets
elsewhere in the euro zone is seen making Italian yields
attractive compared with those of other bonds in the region.
This continues to fuel demand for Italian debt from
investors relying on the ECB's as yet untested bond-buying
programme to protect them in case sentiment turns.
"I don't think Italian bonds are profiting from the Japanese
argument," said Mathias van der Jeugt, rate strategist at KBC.
"But the ECB and the 'Draghi put' remain a supporting
factor," he said, referring to ECB President Mario Draghi's
pledge to do whatever it takes to save the euro.
Van der Jeugt sees Italian 10-year yields falling towards 4
percent, and says about 17 billion euros of debt redemptions and
coupon payments next week should ensure a smooth auction.
The strong performance of Italian bonds despite the
political uncertainty and the weakening economic fundamentals is
puzzling many analysts.
"The market seems to me overly complacent," said Alan
McQuaid, chief economist at Merrion Stockbrokers. "I'm a bit
uneasy with the whole thing. It is why we got in this mess in
the first place - bond vigilantes were asleep."
After pulling away from record lows recently as the market
had to absorb new debt supply, French, Belgian, Austrian and
Dutch yields resumed falling on Thursday as investors
anticipated demand from buyers outside the euro zone.
French 10-year yields were 3 bps lower at
In Germany, Bund futures were flat at 145.35.
(Editing by Nigel Stephenson)