* Italian debt under pressure on political tensions
* ECB stays on hold; Bund in ranges
* Investors continue to seek French bonds at auction
By Ana Nicolaci da Costa
LONDON, Dec 6 Italian and Spanish government
bonds fell on Thursday as political developments in Italy
prompted investors to cash in on a recent rally, while Bunds
were in tight ranges as the European Central Bank kept rates on
Italian premier Mario Monti's government survived a Senate
confidence vote on economic measures but a walkout by Silvio
Berlusconi's PDL party indicated political tensions were rising
before an election expected in March..
Italian debt came under selling pressure and Spanish debt
followed suit a day after a disappointing Spanish bond sale also
underscored the limits of a bond rally, which traders said was
based on sentiment after a deal on Greek debt rather than on
"After the recent rally this is very good opportunity to
sell Italy," one trader in Milan said.
Ten-year Italian government bond yields
increased 11 bps to 4.57 percent and the Spanish equivalent
rose 11 bps to 5.53 percent.
The German Bund future was up 7 ticks on
the day at 145.17, after the December contract rolled over into
the March one.
The sell-off in peripheral bonds came just before the ECB
left interest rates steady at 0.75 percent, in line with
expectations, with attention shifting to new economic forecasts
as investors seek clues about monetary policy in 2013.
Analysts expect the ECB will also reiterate that an aid
request is a pre-requisite for the bank to buy the bonds of
indebted euro zone states.
"The ECB will keep the door open for maybe another refi rate
cut early next year," said Patrick Jacq, European rate
strategist at BNP Paribas.
"I think there will be no change from the latest press
conference in early November."
On Nov. 8, ECB President Mario Draghi said the euro zone
economy showed little sign of recovering before year-end,
leaving open the possibility of an interest rate cut in the
Long-term worries about the euro zone and more immediate
concerns about talks in the United States aimed at averting a
fiscal crisis have recently benefited safer government bonds.
French 10-year yields hit euro-era lows on
The backdrop helped a 3.97 billion euro sale of French
bonds. The Treasury sold at the top of its target range as
investors sought the liquidity and safety of the French market,
even after Moody's downgraded the euro zone's second largest
economy's credit rating last month.
In the secondary market, 10-year French yields were up 2.6
basis points at 2.03 percent.
"Even at 2 percent, (the French yield) might be (at)
euro-era lows, but it's still cheaper than German," a second
trader said, predicting that the premium 10-year French debt
offers over Germany would fall further as year-end approaches
from 69 basis points currently.