| LONDON, April 24
LONDON, April 24 Spanish and Italian bonds edged
up from their lowest levels in more than eight years on Thursday
before chunky debt sales by the two countries that should help
them complete about 40 percent of their funding programmes for
Selling pressure in secondary markets before auctions is
common as investors make room in their books for the new paper.
The sales are widely expected to go smoothly as the
possibility that the European Central Bank may eventually
attempt to fight low inflation with an asset purchase programme
keeps demand for high-yielding debt intact.
ECB President Mario Draghi is due to hold a keynote speech
in Amsterdam at 0900 GMT and traders said the pullback in yields
was capped by the likelihood that he will reinforce expectations
of a quantitative easing programme.
Spanish 10-year yields rose 2 basis points to
3.07 percent, while Italian 10-year yields added a
similar amount to 3.10 percent. Both remained within touching
distance of recent lows.
"We certainly see some supply pressure ... (but) overall
investors are still craving for yield pick-up as you have
ongoing speculation about QE," said Christian Lenk, a strategist
at DZ Bank.
Spain plans to sell as much as 5.5 billion euros in three-,
five- and 10-year bonds. Italy plans to sell up to 5 billion
euros of zero-coupon and inflation-linked bonds later on
Thursday, as well as up to 9 billion euros of bonds at its
regular end-of-the-month auction on April 29.
The sales come a day after Portugal's first bond auction in
three years, at which Lisbon paid a record low yield that was
seen as a boost to its chances of making a clean exit from its
bailout programme next month.
The favourable market environment has allowed Rome and
Madrid, once at the sharp end of the euro zone crisis, to build
a financial cushion. Italy has already completed 37.6 percent of
its 2014 debt issuance plans, while Spain has reached 38.8
percent of its target.
Some analysts say the duo's significant funding progress
makes the roughly one percentage point drop in their 10-year
yields this year even more impressive, although others caution
that the first two quarters have historically been busier in
terms of issuance activity.
Fitch is due to reassess the BBB rating of Spain and BBB+
rating of Italy on Friday. Analysts expect at least the negative
outlook on Italy's rating to be changed to stable, although they
do not rule out rating upgrades on the back of their improved
access to funding.
"We have to deal with a fair amount of supply from the
periphery so there might be some pressure today but bigger
picture we still like it and we see any pullback as a buying
opportunity," one trader said.
(Reporting by Marius Zaharia; Editing by John Stonestreet)