* Italian yields dip towards eight-year lows
* Renzi forces Letta to resign as Italy's prime minister
* Markets view Renzi as "positive" change
* Moody's due to review Italy's ratings; no change seen
By Joshua Franklin and Marius Zaharia
LONDON, Feb 14 Italian bond yields fell back
towards eight-year lows on Friday as investors warmed to the
prospect of centre-left leader Matteo Renzi becoming new prime
minister with his pledge for a more "ambitious" government.
Renzi could be named prime minister as soon as this weekend
after his centre-left Democratic Party leadership forced party
rival Enrico Letta to resign after 10 months in power.
Renzi, who would be the country's youngest-ever prime
minister, has criticised Letta for failing to introduce
growth-boosting reforms as Italy has lagged an economic rebound
in peripheral euro zone peers.
Data showed on Friday Italy's economy grew 0.1 percent in
the fourth quarter, compared with 0.3 percent growth in the euro
zone as a whole and 0.5 percent in Portugal.
Improving its growth prospects is key for Italy's attempts
to curb a 2 trillion euro debt load, which is roughly 1.3 times
its economic output.
Investors seemed to take the political changes well, with
10-year Italian yields falling 4 basis points to
3.68 percent, just 2 basis points shy of an eight-year low hit
earlier this week. They traded around 3.78 percent before Renzi
proposed the leadership change to his party late on Thursday.
"He (Renzi) has a longer horizon. He's said he wants to stay
until the next general election which will take place in 2018.
This gives room to pursue more challenging reforms," said Sergio
Capaldi, a strategist at SanPaolo. "The market for the time
being believes he will deliver."
Other analysts said Renzi's stronger hand risked turning his
coalition partners against him in the longer run.
"There is a big risk actually this whole thing could
actually blow up in a way that, at the moment, is not seen by
the market," said Gianluca Ziglio, an analyst at Sunrise Brokers
in London. "If Mr. Letta was not successful and he is someone
who is a bridge between the two sides, someone who is going to
be more on one side might find it even harder."
German 10-year Bund yields, the euro zone's
benchmark, were up 1.4 bps at 1.68 percent after the
forecast-beating euro zone GDP data, though further falls were
tempered as bets for looser European Central Bank policy
remained intact given ultra-low inflation.
Renzi is due to lead Italy's third administration in a year
and his coalition partner, the New Centre Right Party, said it
did not expect him to last a full term until 2018.
The unstable political backdrop has been one of the factors
to blame for Italian yields trading above their Spanish peers.
Spanish Prime Minister Mariano Rajoy has survived a
corruption scandal in his party and has been able to push
through reforms that have improved economic indicators beyond
"You're going to get a reformist but he doesn't have that
much experience and he will have to suffer with the same
coalition. It's positive, but let's see," said Daniel Loughney,
portfolio manager at AllianceBernstein.
Later on Friday, Moody's Investor Service is due to review
Italy's credit rating, in accordance with new European
regulations obliging ratings agencies to publish a calendar of
when they might adjust their views on sovereigns.
Analysts do not expect any change in Italy's ratings or
outlook and the agency may not make any announcement if it
decides to maintain the status quo.
Moody's rates Italy Baa2, while Standard & Poor's ranks it
BBB and Fitch has it on BBB+, all with a negative outlook and
citing political fragility as weighing on its ratings.