* Germany to sell 4 billion euro of 10-year debt
* Auction seen going well on ECB rate cut bets
* Italian yields fall after solid retail bond sale
By Emelia Sithole-Matarise
LONDON, April 17 Italian bonds rose on
Wednesday, extending the previous day's gains after a bumper
retail bond sale, highlighting a hunt for higher returns as
monetary easing by global central banks depresses yields on
Italian bonds outperformed Bunds - the euro zone's
lowest-risk debt - after a sale of inflation-linked bonds
targeted at wealthy domestic investors on Tuesday raised 17
billion euros, beating the Treasury's predictions of just under
10 billion euros.
Focus turned to Germany's auction of 4 billion euros of
10-year debt, which analysts expect to be well received despite
low yields, supported by investor expectations that the European
Central Bank will cut interest rates in coming months.
Anticipation that the euro zone's safe-haven debt will also
benefit from potential Japanese investors switching out of their
ultra-low yielding domestic bonds into foreign debt offering
relatively higher returns was also expected to bolster demand
At 1.3 percent, German 10-year Bunds offer a yield pick-up
over their Japanese equivalents whose yields slid to record lows
of 0.6 percent after the Bank of Japan unveiled
huge stimulus measures earlier this month.
The German Bund future was down 23 ticks at 145.50
as traders pushed for lower prices before the sale.
"There's some concession before the auction but we also saw
a lack of support coming from the U.S. yesterday after
(better-than-expected factory) data," said Patrick Jacq, a
strategist at BNP Paribas.
"When the Bund was around 1.20 percent last week this was
very expensive, especially versus other markets, and since we
have seen a decline in volatility in peripherals. So we were
expecting a pullback to the 1.30 percent area."
GRADUAL JAPANESE FLOWS
German 10-year yields are near troughs seen last year, when
a euro zone break-up was considered by many as a realistic
possibility, and right before the European Central Bank vowed to
protect the euro.
Expectations of further monetary easing from major central
banks and trust in the ECB's as yet untested pledge to buy bonds
of struggling euro zone issuers if requested has underpinned
demand for the region's higher yielding debt.
Italian 10-year yields were 6.5 basis points
lower at 4.25 percent with Spanish equivalents 6
bps down at 4.68 percent.
Although market participants said they were seeing no flows
from Japan, the expectation that Japanese investors will look
abroad for higher returns was helping keep euro zone yields low.
"We have had limited evidence of Japanese investors
switching into the euro zone so far. But it's the start of the
(Japanese) fiscal year and the impact of the BOJ policy is
likely to be gradual," a trader said.
"We expect the Japanese will have to buy debt other than
JGBs as BOJ policy means that near term it's weakening the yen,
and Japanese inflation may push higher as well so it makes sense
to be invested in other currencies."
Slovenia's struggle to avoid becoming the euro zone's next
bailout candidate will also be in the spotlight as it auctions
500 million euros of 18-month treasury bills and then try to buy
back 855 million euros of the bills coming due at a small