* Italy offers 2018 bonds for 2015, 2017 paper
* Euro zone bonds broadly higher on prospect of easy policy
* ECB outlook supportive, particularly for periphery
By Marius Zaharia and Ana Nicolaci da Costa
LONDON, Nov 18 Italian bonds edged up on Monday
as investors attracted by prospects of a more stable government
and ultra-easy central bank policy snapped up the five-year debt
on offer in an exchange operation.
The Treasury assigned 3.3 billion euros of benchmark
December 2018 bonds in exchange for five bonds due in 2015 and
2017 in a bid to ease its near-term repayments.
The size of Monday's debt exchange was double the average of
the previous seven, according to ING, and analysts said that
showed such offers can efficiently lengthen the maturity of
Italy's debt if done regularly.
"The key takeaway was that Italy has plenty of instruments
to ease its debt burden and smoothen its issuance," said Michael
Leister, strategist at Commerzbank.
Ten-year Italian bond yields fell 2.5 basis
points to 4.07 percent, close to November's five-month lows of
4.04 percent. The yield premium it offers over equivalent German
Bunds was little changed at 239 bps.
But some analysts said scope for the yield premium
lower-rated bonds offer over Bunds to narrow further was
"Most of the decline in the spread coming from the decrease
of the systemic risk is behind us. We are going to see further
spread tightening but much less," Giordano Lombardo, Deputy CEO,
Pioneer Investments, told the Reuters Global Investment Outlook
"We are not very far from fair value...probably we have
another 50 bps (of tightening) left to fair value and this is
mainly due to domestic policies, on reforms."
The diminishing risk of the Italian government collapsing
also supported the country's bonds. Former premier Silvio
Berlusconi, facing expulsion from parliament, said on Saturday
he may no longer back the coalition but would not be able to
bring it down as a group of MPs in his party pledged support for
Prime Minister Enrico Letta.
After Monday's debt exchange, Italy will not offer five-year
bonds at its regular end-of-month auction. With its 2013 funding
almost completed after a record inflation-linked bond sale at
the start of the month, Italian bonds will benefit from reduced
supply pressure into year-end.
Elsewhere, euro zone bonds were broadly buoyed by the
prospect of more easy monetary policy. Not only did the ECB
surprise markets with a rate cut this month, but Janet Yellen's
comments at a hearing into her nomination to lead the U.S.
central bank were considered dovish.
Bund futures rose 22 ticks to 141.85. Ten-year
German yields were 2.4 bps lower at 1.68 percent
while other highly-rated bonds were 2 bps lower.
Ten-year Belgian yields fell 4.6 bps to 2.39
percent after Belgium cancelled the final bond auction of this