* Italy to close inflation-linked bond retail sale early
* Retail debt sale sets new record above 18 billion euros
* Sale seen easing Italy funding pressure
* Rest of euro zone debt edges up but still edgy over ECB
By Emelia Sithole-Matarise
LONDON, Nov 6 Italian bond prices rose on
Wednesday after bumper demand at a sale of retail
inflation-linked bonds reduced the country's funding needs for
the rest of the year.
Comments by a top U.S. Federal official overnight saying the
Fed should wait for the economy to gain momentum before trimming
its bond purchase stimulus in general helped euro zone debt
recover from a selloff a day earlier.
The market was knocked lower on Tuesday by doubts over
whether the European Central Bank would send a strong signal
this week of an imminent cut in interest rates despite a sharp
drop in euro zone inflation.
The Italian retail sale has already raised over 18 billion
euros since its launch on Tuesday, prompting the Italian
Treasury to say it would close the deal at 1200 GMT on
Wednesday, more than two days earlier than planned.
The Treasury had mooted a sale of just 10 billion euros of
the paper but it now looks set to top a similar issue last year
that was the biggest single debt sale by a European government
Italian 10-year yields were last 4 basis points down at 4.14
percent, slightly outperforming other euro zone
bonds. Equivalent Spanish yields were 2 bps lower at 4.09
"Italy is getting huge success with the BTP Italia sale ...
That's huge support for the Treasury and points to strong
support from institutional investors and it can allow the
Treaury to pre-finance 2014 borrowing," said ING strategist
Italy has already met almost 90 percent of the roughly 470
billion euros it needs to borrow this year and analysts say the
successful retail bond sale could allow it to cut bond auction
sizes for the rest of the year.
This strong financial position and expectations the ECB
could loosen monetary policy further is allowing Italy to fend
off pressure from political tensions before a Senate vote on
whether to expel ex-premier Silvio Berlusconi from parliament.
There was support for bond markets in general from comments
from San Francisco Federal Reserve President John Williams
overnight. He said that the U.S. central bank should wait for
stronger evidence of growth momentum before trimming its $85
billion monthly bond-buying.
German Bund futures were last 11 ticks up at
141.26, having fallen more than 70 ticks the previous day as
players judged the market might have gotten ahead of itself in
expecting a strong signal from the ECB or even an actual rate
A Reuters poll showed only one of 24 traders surveyed
expected the ECB to cut interest rates on Thursday.
On Wednesday, cash German 10-year yields were 1 basis point
lower at 1.74 percent with some traders saying the
previous day's sell-off might have been overdone.
"Maybe the market got speculatively long ahead of the ECB
and so we had a bit of a shakeout yesterday but I don't think
positioning is excessive," one trader said. "We still think
there's still a chance of a rate cut tomorrow although I don't
think that's priced in to the market."