* Italian parliament meets for first time since election
* Post-election Italian yield range may hold -analyst
* Portugal to present outcome of bailout programme review
By Marius Zaharia
LONDON, March 15 Italian bond yields edged up in
a cautious market on Friday as the country's parliament convenes
for the first time since last month's election, with parties
still deadlocked over forming a government.
The Feb. 24-25 vote produced a hung parliament, with the
centre-left winning control over the lower house but not of the
Senate. Analysts say the leadership vacuum could derail Italy's
efforts to return to growth and keep its 2 trillion euro debt
pile under control.
Italian bonds have so far been largely able to weather the
heightened uncertainty as investors, encouraged by the perceived
safety net offered by the European Central Bank's untested
bond-buying programme, have continued to chase the relatively
high yields on offer.
But the political wrangling expected in coming days could
unsettle some, and Italian bonds could face increased volatility
in the near term. Safe-haven German Bunds may then get a boost.
"If there is no capable government any time soon ...
(Italian bonds) should come under pressure again," said Viola
Julien, a fixed income analyst at Helaba Landesbank
Italian 10-year yields were last 3 basis
points higher on the day at 4.67 percent. Julien said the
post-election range of roughly 4.6-4.9 percent should hold in
the near term.
Bond yields of euro zone periphery peer Portugal were
slightly lower across the curve on Thursday, with 10-year bonds
returning 5.97 percent and two-year debt
offering 3.28 percent.
Portugal will announce on Friday the outcome of its lenders'
seventh review of its bailout programme. The European Commission
has already said it plans to give Lisbon an extra year to meet
its budget deficit goals.
After fellow bailout recipient Ireland's successful 10-year
bond issue earlier this week, investors are increasingly betting
Portugal will soon take steps towards coming back to the market
"We like playing the convergence via 2-3 year switches out
of Italy and Spain into Portugal," Commerzbank strategists said
in a note.
Bund futures were 3 ticks higher on the day at
143.17, while cash 10-year German yields were
steady at 1.47 percent.
Traders said U.S. manufacturing data later in the day could
be key for the near-term trend for Bunds after a tight trading
range in the past couple of sessions.
"The market is positioned for a strong (number), but there
is potential for disappointment and that could support Bunds,"
the trader said.