LONDON Feb 27 Bund futures added to this week's hefty gains on Wednesday before an Italian debt auction that will give an indication of how worried investors are about the country's inconclusive elections.
U.S. Federal Reserve Chairman Ben Bernanke's defence of the central bank's stimulus programme has released some of the steam behind the Bund's recent rally, with European shares seen opening slightly higher.
With no party or potential coalition having won a majority after the vote In Italy, the country risks entering a prolonged period of political deadlock, which could derail its efforts to keep its 2 trillion euro ($2.6 trillion) debt burden under control.
Italian bonds have weakened sharply this week and analysts say the longer it takes for the country to form a government, the higher the chances of a bigger sell-off.
Rome will seek to sell 3-4 billion euros of a new 10-year bond and 1.75-2.5 billion euros of five-year paper.
"Italy remains the centre of attention and I can't see it getting any better," one trader said. "Supply will be the main focus and ... it could be a bit of a problem."
Bund futures were last 7 ticks higher on the day at 144.97, having rallied 128 ticks in the previous two sessions.