June 2, 2020 / 10:36 AM / a month ago

UPDATE 2-Italian bond yields rise as focus on ECB purchases, meeting

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds ECB bond buying data, Italian syndication announcement, updates prices)

By Elizabeth Howcroft and Yoruk Bahceli

LONDON, June 2 (Reuters) - Most euro zone bond yields dipped but Italian yields rose on Tuesday, with investor attention focused on the first release of data breaking down the ECB’s emergency purchases and the bank’s upcoming meeting.

The European Central Bank scooped up all of Italy’s new debt in April and May but merely managed to keep borrowing costs from rising. It ditched its ruleboook and hoovered up much more Italian debt than the country’s quota would dictate, according to data which for the first time showed how the ECB’s emergency bond purchases are distributed.

It bought 51.1 billion euros worth of Italian government bonds over the last two months, compared with a net supply of 49 billion euros, according to UniCredit calculations.

Investors continue to focus on the ECB in gauging the direction of Italian debt. The bank is expected to increase its 750 billion-euro bond-buying programme, the Pandemic Emergency Purchase Programme, or PEPP, on Thursday, probably by around 500 billion euros.

“We are anticipating an increase in asset purchases,” said Seema Shah, chief strategist at Principal Global Investors in London.

“It will be important to see if there’s any acknowledgement of the ruling from the GCC and how it impacts the ECB going forward,” she added, referring to the German constitutional court ruling in May that the ECB had overstepped its mandate.

But a news report by MNI, citing unnamed ECB officials, said many members of the ECB’s governing council would oppose adding to the asset-purchase programme, preferring to wait as long as several months.

“Such second thoughts should limit the downside in BTP-spreads near-term,” Commerzbank strategists told clients.

Italian yields posted their biggest monthly fall in four months in May, boosted by the likelihood the country will get grants from the European Union to support its coronavirus-hit economy, but analysts say investors may seek to take profits following the rally.

Italian government bond yields rose, with the 10-year yield up 4 basis points to 1.51% and the risk premium it pays over German bonds at 190 bps.

Its treasury announced it has hired banks to manage the sale of a new 10-year bond “in the near future, subject to market conditions”, a phrase usually used a day before a sale takes place.

Safe-haven German 10-year bond yields, which yesterday rose 5 bps to a three week-high of -0.39%, were last down two basis points at -0.42%.

Reporting by Elizabeth Howcroft and Yoruk Bahceli, additional reporting by Dhara Ranasinghe; editing by Larry King and Giles Elgood

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