(corrects auction date in first paragraph)
By Ana Nicolaci da Costa
LONDON Dec 23 Italian bonds fell on Monday
after Italian consumer morale dropped more sharply than expected
in December and as the country faces its last auction of the
year this week.
They fell in line with the rest of the euro zone debt
market, where price moves were being exaggerated by thin
liquidity before the Christmas holidays and the end of year.
German yields were near their highest since mid-October
after the Federal Reserve announced it would scale back
asset-purchases last week and investors would turn to a personal
consumption report to gauge the pace of stimulus withdrawal.
After the Italian and Spanish premium over 10-year German
Bunds fell by more than 50 and 100 basis points respectively
this year, investors were taking some profits as they balanced
their books into the end of the year.
"In a thin market, the data might be enough to take bond
prices lower," Lyn Graham-Taylor, fixed income strategist at
Italy's consumer confidence index fell to 96.2 in December
from a revised 98.2 in November and well below a median forecast
of 98.8 in a Reuters survey.
Ten-year Italian bond yields were up 4.5 basis
points at 4.17 percent pushing the premium over Bunds 2 basis
points wider on the day to 228 bps.
The Spanish equivalent was 5.1 bps higher at
4.2 percent, pushing the yield gap with German Bunds 4 bps
higher to 232 bps.
The Italian Treasury said on Friday it would offer 8 billion
euros of Treasury bills and up to 3 billion euros of zero-coupon
bonds at its regular end-month auction on Dec. 27.
It also said it would sell more retail bonds, known as BTP
Italia, in 2014 due to the enormous success of this year's
German yields continued to be supported by an improving U.S.
outlook. The International Monetary Fund predicts the U.S.
economy would expand at a faster pace next year, given positive
economic data and some signs of compromise in Congress, the head
of the Washington-based lender said on Sunday.
The comments come after an upward revision to U.S. growth
data on Friday underpinned the view that the Fed's decision to
scale back its asset-buying programme was justified.
Against this backdrop, investors would look at a U.S.
personal consumption data later, including a gauge of inflation,
to assess the pace of stimulus withdrawal.
"You would expect to see some upward pressure on German
yields if we were to continue to see surprises such as (the
growth data) coming from the U.S.," Chris Clark, rates
strategist at ICAP, said.
"The market is expecting a fairly robust personal income
report. This would tie into the generally upbeat picture that we
have been seeing in the U.S. recently."
German Bund futures fell 20 ticks to 139.72,
pushing yields up 1.9 basis point to 1.89 percent.
They touched 1.903 percent earlier - not far from Friday's
1.906 percent, which was the highest since mid-October.
"We are at about 15-20 percent of normal volumes," one
On Friday, volumes totaled nearly 410,000 lots, well below
this year's daily average of nearly 682,000 lots. One lot
represents 100,000 contracts traded.
(Editing by Toby Chopra)