* Italian parliament meets for first time since election
* Post-election Italian yield range may hold - analyst
* Two-year Portuguese bonds gain as troika completes review
By Marius Zaharia
LONDON, March 15 Italian bonds were steady on
Friday as the country's parliament convened for the first time
since last month's election, with parties still deadlocked over
forming a government.
A 2.85 billion euro debt buyback using proceeds from
privatisation money offered marginal support to Italian bonds,
traders said. Political wrangling in coming days, however, may
heighten volatility in one of the world's largest debt markets.
"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
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 that the leadership vacuum could derail
Italy's efforts to return to growth and keep its finances in
Italian bonds have so far been largely able to weather the
heightened uncertainty as investors continue to chase the
relatively high yields on offer, encouraged by the perceived
safety net offered by the European Central Bank's untested
"So far we've seen a strong (willingness) by investors in
the market to take any episode of weakness as a buying
opportunity. I don't think that will change next week,"
UniCredit rate strategist Luca Cazzulani said.
Italian 10-year yields were trading three
basis points lower at 4.61 percent, having traded slightly
higher on the day before the buyback. Helaba's Julien said the
post-election range of roughly 4.6 percent to 4.9 percent should
hold in the near term.
Two-year Portuguese yields fell eight basis
points on the day to 3.22 percent, outperforming other
short-dated euro zone paper as the troika of international
lenders completed their seventh review of Lisbon's bailout
The country was given more leeway to meet its budget
deficits, as expected, and its finance minister Vitor Gaspar
said that a bond sale might be on the cards in the coming weeks.
After fellow bailout recipient Ireland's successful 10-year
bond issue this week, investors are increasingly betting that
Portugal will follow in its footsteps and its yields would start
converging towards those of other peripheral issuers.
"We like playing the convergence via two to three-year
switches out of Italy and Spain into Portugal," Commerzbank
strategists said in a note.
Bund futures were a tick higher on the day at
143.15, while cash 10-year German yields were
steady at 1.47 percent.
Traders said that 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,"
one trader said.