May 30, 2013 / 11:24 AM / 5 years ago

EURO GOVT-Italian yields turn lower after decent auction

* Italian bonds rise after decent auction

* Italy sold at the top end of target, yields rose

* Bunds rise after recent sell-off

By Ana Nicolaci da Costa

LONDON, May 30 (Reuters) - Italian yields turned lower on Thursday after an auction of five- and 10-year paper attracted decent demand from investors enticed by a recent pick-up in yields.

Italy sold at the top end of its planned 4-5.75 billion euro range even though yields rose at the auction and demand was lower than this year’s average for similar bond sales.

Analysts said the rise in borrowing costs however reflected the recent global move driven by the possibility that the Federal Reserve may scale back bond purchases, rather than any concerns related specifically to Italy.

“It is a function of the concerns about U.S. policy, that big sharp rise that we have seen in U.S. bond yields and the volatility and the rise in JGB (Japanese) yields,” Marc Ostwald, strategist at Monument Securities said. “Euro zone yields can’t be immune to that.”

Italian borrowing costs over ten years were 4.4 basis points lower at 4.14 percent, having risen in early trade before the auction. Spanish bonds also recovered early losses, with yields last trading flat at 4.40 percent.

A sale of 10-year paper attracted bids worth 1.38 times the amount on offer, below this year’s 1.469 average.

The yield at the auction was 4.14 percent, higher than 3.94 percent at a similar sale in April but also below a 2013 average of 4.477 percent.

The Fed’s ultra-easy monetary policy programme has underpinned global financial markets by flooding them with liquidity and the first hints of an exit have also weighed on safe-haven German Bunds. But cheaper debt prices attracted back buyers, also driving the contract higher on the day.

German Bund futures were 28 ticks higher at 143.69, and 10-year yields 2.2 basis points lower to 1.48 percent. They hit their highest in nearly three months on Wednesday at 1.519 percent.

“When we look at domestic factors, activity, inflation, unemployment, conditions are still in place to have lower (German) yields,” Patrick Jacq, European rate strategist at BNP Paribas said.

“We are recommending long (buy) the Bunds at 1.50 (percent) with the target closer to 1.40 for the weeks ahead.”

Investors will also keep a close eye on U.S. releases, including gross domestic product numbers and initial jobless claims, as they try to gauge the Fed’s next move.

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