* Italy sells three-year debt at lowest yield since Jan
* Talk of Spanish syndicated deal persists
* Bunds edge up but hold near six-week lows
By Marius Zaharia
LONDON, May 13 Italian bond yields edged up on
Monday, even after a strong debt auction, as expectations of
more supply from the euro zone's lower-rated states put another
dent in this year's strong rally.
Italy sold 8 billion euros of three- and 13-year bonds, with
borrowing costs for the short-dated paper at their lowest since
January and demand levels holding firm.
Benchmark 10-year yields in secondary markets,
however, continued to rise, last trading 7 basis points higher
on the day at 3.97 percent versus 3.95 percent before the sale.
"The auction went pretty smoothly, it got decent demand,
yields are lower, but it was not enough to turn around the
correction in peripheral bonds," RIA Capital Markets bond
strategist Nick Stamenkovic said.
"This is a healthy correction, it is not a change in the
He said 10-year yields above 4 percent in Italy and 4.40-
4.50 percent in Spain would probably lure investors back in.
Traders said the profit-taking moves which have pushed
Italian and Spanish 10-year yields about 20 basis points higher
in the past week have been triggered mainly by speculation that
Spain may launch a syndicated debt sale in the near future.
The Spanish government has not commented, but market talk
persists after strong syndicated debt sales by Portugal and
Slovenia earlier this month.
"It might put some pressure on Spanish bonds in the near
term if rumours persist but I don't think it would be a reason
to delay it or not to do it," said Mathias van der Jeugt, rate
strategist at KBC in Brussels.
Appetite for lower-rated euro zone debt has been strong this
year as ultra-easy central bank policies have pushed investors
towards riskier assets in search of higher returns.
Spanish 10-year yields were 7 bps higher at
At the other end of the credit spectrum, German Bund futures
were 28 ticks higher on the day at 144.94, after
matching Friday's six-week low at 144.43 at the open.
Comments by ECB governing council member Ignazio Visco that
the central bank could cut the deposit rate into negative
territory eased expectations that a run of better economic data
could put the ECB off further easing.