January 17, 2019 / 12:03 PM / 9 months ago

UPDATE 3-Italian short-dated yields hit six-month lows

* Short-dated Italian debt yields hit six-month lows

* Bumper Italian bond sale boosts sentiment

* Greek yields hit four-month lows after Tsipras survives vote

* Soft Brexit hopes push Gilt, Bund yields higher (Rewrites to reflect rise in yields)

By Virginia Furness and Abhinav Ramnarayan

LONDON, Jan 17 (Reuters) - Italy’s short-dated government bond yields hit their lowest levels in half a year on Thursday, bolstered by this week’s successful bond sale, while Greek bonds also shone after Prime Minister Alexis Tsipras survived a no confidence vote.

Most notably, Italy’s two-year bond yield briefly touched its lowest level since before the heavy sell-off on May 29, when that debt suffered its worst day in over 25 years as the country’s euro membership appeared to be in serious doubt.

The rally abated as the session wore on, but Italian bond yields held close to some of their lowest recent levels.

“The very successful sale on the benchmark has contributed to this, when you consider that one of the main sources of concern has been whether Italy will be able to attract investors in 2019,” said UniCredit rates strategist Luca Cazzulani.

Italy raised 10 billion euros on Tuesday in its biggest ever syndicated bond sale, drawing total investor orders of more than 35.5 billion euros ($41 billion).

“Having said so, there are still elements of uncertainty. It is short term reaction. When you look at the short end — it offers a very large amount of carry.”

Italy’s five-year bond yield had fallen 13.5 basis points Wednesday, its biggest one-day decline in over a month , and on Thursday hit new six-month low of 1.572 percent before closing the session at around 1.62 percent.

The two-year bond yield touched its lowest point since May at 0.273 percent, though it was back above 0.30 percent by the close.


Greek government bond yields also fell to new lows on Thursday after Prime Minister Alexis Tsipras won a confidence vote in parliament triggered by Greece’s approval of an accord to end a dispute over Macedonia’s name. His narrow victory averted a possible snap election.

Greece is widely expected to return to the debt markets in the coming weeks, with Italy’s deal likely to provide confidence for the southern European nation.

EU Economics Commissioner Pierre Moscovici said on Wednesday that Greece should regain full access to the debt markets and all efforts should be made to that end.

Greece’s five-year government bond yield slipped to its lowest level since September at 3.087 percent.

Spanish debt also benefited from the stronger risk appetite which saw investors soak up 4.6 billion euros of new supply.

Its 10-year government bond yield fell to 1.34 percent, its lowest since December.


Elsewhere, core euro zone bond markets have taken their cue this week from Britain, where gilt yields rose on Wednesday after the parliament rejected Prime Minister Theresa May’s withdrawal agreement with the European Union.

May then survived a no-confidence vote on Wednesday night but uncertainty over the passage of Britain’s exit from the EU rumbles on.

“Gilt yields have been rising on the growing feeling that we may have a softer Brexit or indeed no Brexit at all,” said Rabobank strategist Richard McGuire.

“You can see that reflected in sterling, which has been quite strong this week.”

Indeed, the British currency hit seven-week highs against both the dollar and the pound.

British 10-year Gilt yields were a shade away from a six-week high hit on Wednesday at 1.335 percent, 2.5 basis points higher on the day.

High-grade euro zone bond yields followed suit, with Germany’s 10-year government bond yield, the benchmark for the region, up two bps at 0.24 percent. (Reporting by Virginia Furness; additional reporting by Abhinav Ramnarayan; Editing by Catherine Evans)

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