| LONDON, April 25
LONDON, April 25 Italian bond yields dipped on
Friday, hovering above record lows, after ratings agency Fitch
raised its outlook on the country.
Italy, once at the forefront of the euro zone debt crisis,
emerged from recession at the end of last year and is enjoying
much improved market conditions, Fitch said. The country has
already issued around 40 percent of its annual funding target
this year following a 5 billion euro auction on Thursday.
"It is a reminder that the world has changed its mind about
periphery," said Luca Jellinek, European head of fixed income at
Fitch affirmed Italy's sovereign rating at BBB+, raising its
outlook to stable from negative. Fitch already rates Italy one
notch above the other two main agencies, Standard and Poor's and
Moody's, which deem it to be BBB (negative) and Baa2 (stable),
Italian 10-year yields fell 1 basis point to
3.11 percent, just above the record low of 3.07 percent hit last
The prospect of further European Central Bank monetary
policy easing is prompting investors to buy peripheral debt,
although some strategists think that mixed messages from
policymakers on a possible asset purchase programme, known as
quantitative easing (QE), is likely to cap a further fall in
"It is questionable whether yields can fall lastingly below
3 percent at a time when ECB QE expectations are being
re-assessed," said Markus Koch, an analyst at Commerzbank.
Others see little resistance to more declines, however.
"We have been, and remain, in a clear tightening trend, and
a lot of that is based on the assumption that any quantitative
easing is favourable," said Jellinek at Credit Agricole.
Spanish yields, which tend to track Italy's, were unchanged
on Friday, as markets waited to see whether Fitch would act on a
ratings announcement also scheduled for Friday.
Spain, like Italy, has enjoyed much improved market access
in 2014. It has completed more than 40 percent of its funding
programme already, paying record low costs to borrow 5.6 billion
euros at auction on Thursday.
In further evidence of ratings agencies taking a more
positive view on the periphery on Friday, both Fitch and
Standard and Poor's lifted Cyprus less than a year after the
country was bailed out.
S&P raised Cyprus' rating to B from B-, with a positive
outlook. Fitch affirmed Cyprus' B- rating, raising its outlook
to stable from negative.
(Editing by Sonya Hepinstall)