* Italy's Letta names government, ends political stalemate
* Italian, Spanish government bonds rally
* Bunds dip, losses limited by ECB rate cut expectations
By Marius Zaharia
LONDON, April 29 Italian government bond yields
fell on Monday and were expected to ease further as new Prime
Minister Enrico Letta prepared to set out his administration's
programme, ending two months of political deadlock.
Prices for low-risk German Bunds fell slightly, but losses
were limited by expectations the European Central Bank will cut
interest rates to new record lows on Thursday.
In Italy, Letta, of the centre-left, was expected to win
parliament's backing in a confidence vote at 1300 GMT. He relies
on the support of his centre-right rivals, led by former premier
An inconclusive election in February left Italy, the euro
zone's third-largest economy, without an effective government,
threatening investor confidence and holding up reform efforts.
BTP futures were last 77 ticks higher at 115.18.
Cash Italian 10-year yields were 9 basis points
lower at 3.98 percent, some 27 bps more than benchmark Bunds.
"The room is open for further spread tightening," said
Richard McGuire, senior rate strategist at Rabobank in London.
"This is not to say the Italian government is not
susceptible to risks... There are doubts about both efficacy and
longevity," he said, adding that the Italian/German 10-year
yield spread could narrow to 200 bps.
Italy dragged other higher-yielding markets with it, with
Spanish 10-year yields down 4 bps at 4.24 percent.
Appetite for riskier assets has been strong this year, with
investors looking to maximise returns as abundant central bank
liquidity drives rates lower across the board.
Italy will issue up to 6 billion euros of five and 10-year
bonds at auctions later on Monday and analysts said Italy could
outperform Spain once the sale was out of the way.
"I believe demand at the auction will be good," said Mathias
van der Jeugt, rate strategist at KBC in Brussels.
"There is the effect of the new Italian government, which is
positive for sentiment. Last week Italian bonds have
underperformed Spanish bonds, which makes them relatively
attractive ... and I expect the underperformance to unwind."
Bund futures were 9 ticks lower at 146.45, with
10-year cash yields 1 bps higher at 1.22 percent.