* Italy to sell up to 5.5 billion euros of bonds
* Domestic demand seen weakening as ECB review eyed
By Emelia Sithole-Matarise
LONDON, Dec 30 Italian yields rose on Monday
ahead of a 5.5-billion-euro debt sale that could be undermined
by weakening domestic demand before a review of banking assets
that will look at the risks of lenders' sovereign exposure.
Rome plans to sell up to 3 billion euros in five-year debt
and up to 2.5 billion euros in 10-year bonds in its last auction
this year. A short-term debt sale last Friday saw yields rise on
waning demand in illiquid markets.
Italian bonds have been under selling pressure in recent
sessions on speculation that domestic banks may reduce their
large holdings ahead of a European Central Bank health check.
The ECB will use balance sheets as of Dec. 31 in its review
of bank assets, including government bonds, next year.
"The auction will probably go OK but will see limited demand
given it's the end of the year. A lot of what we are seeing (in
the bond market) is related to the turn of the year and the
asset quality review but what's key is how things will look next
Monday after the new year," said Anders Svendsen, chief analyst
at Nordea in Copenhagen.
Italian 10-year yields were last 3 basis
points up at 4.24 percent, while Spanish equivalents
were 2 bps higher at 4.25 percent.
In core markets, German 10-year yields were
slightly up at 1.95 percent, near their highest levels since
mid-September as an upbeat U.S. outlook soured investor appetite
for safe-haven bonds. Bund futures were last 6 ticks
lower at 138.96 in holiday-thinned trade.
"We are seeing some optimism on the world economy and that's
bond negative... The ECB might do more (on loosening monetary
policy) if we start to see yields rising more significantly but
we're probably looking at the coming quarter with them on hold,"
a trader said.