* Investors enthused by Renzi's ambitious reform agenda
* Renzi cabinet expected this weekend
* ECB outlook, soft U.S. data support Bunds before debt sale
By Emelia Sithole-Matarise
LONDON, Feb 19 Italian yields hovered at
eight-year lows on Wednesday as Prime Minister-designate Matteo
Renzi scrambled to assemble a cabinet that investors hope will
deliver on his ambitious reform agenda.
Investors have given the 39-year old Renzi the benefit of
the doubt after his centre-left leadership forced Enrico Letta
to resign as prime minister last week, accusing Letta of failure
to push through reforms needed to revive the economy.
Renzi, who is expected to have his new cabinet in place by
the weekend, has pledged a rapid programme of reforms, including
tackling the electoral and constitutional system, all within
four months of taking office.
Italian 10-year yields held steady at their
lowest since early 2006 at around 3.54 percent, having fallen
almost 30 basis points since Thursday when Renzi threw down the
gauntlet to Letta. Moody's upgrade on Friday of the outlook on
Italy's creditworthiness spurred the fall in yields.
"Expectations of Renzi delivering are building day by day.
It raises the question whether he can live up to the hopes and
if there's risk of profit-taking in the near term," said
Commerzbank strategist Michael Leister.
"It seems like sentiment and the downward momentum in
peripheral yields is very strong. I wouldn't recommend to catch
the falling knife. I see another five to 10 basis points (fall
in Italian yields) near-term."
Italy's 10-year bond yield premium over German benchmarks
has fallen to its lowest since 2011, around 190 basis points,
less than half the levels hit at the height of the euro zone
crisis in early 2012.
Leister and other analysts said expectations that the
European Central Bank may ease monetary policy further this year
to fend off deflation was also spurring demand for
higher-yielding euro zone bonds.
The ECB outlook and a recent patch of soft U.S. data also
underpinned demand for safe-haven Bunds ahead of a German sale
of up to 5 billion euros of 10-year German bonds.
The Bund future was last 10 ticks up at 143.82 with
cash yields 0.5 bps lower at 1.67 percent.