LONDON: Italian government bond yields rose across the curve ahead of the sale of a 30-year syndicated debt issue that will test market appetite for debt from Italy, amid political and economic uncertainty for the euro zone's third-biggest economy.
Italy's Treasury launched a new 30-year syndicated bond sale on Wednesday, a deal that is expected to price later in the session. The economy has slipped into recession and there are signs of strains within the ruling coalition.
But with the broader euro zone economy also looking weak and European Central Bank policy likely to remain loose for the foreseeable future, analysts expect there to be demand for the trade.
"Because the Italian recession is coinciding with broader weakness in the euro area, we would expect there is good demand for the deal," said Peter Chatwell, head of rates at Mizuho.
"But the main concern is that it is coming so soon after the 15-year (issue) it might cause some indigestion," he added, referring to January's 15-year syndicated issue from Italy.
The yield on Italy's outstanding 30-year bonds hit a three-week high of 3.695 percent, up four basis points on the day.
Yields often rise ahead of a bond sale as investors make space for the new supply.
Other Italian bond yields also rose 2-3 bps, their highest levels in about three weeks.
That said, many euro zone countries have received record demand for bond sales this year so far.
Finland became the latest seller to generate record levels of demand for a new 10-year issue on Tuesday, providing further proof of the popularity of safe haven euro zone debt against a backdrop of weakening global growth.
Other euro zone government bond yields edged lower on the day after German industry orders were unexpectedly low, in a further sign that factories in Europe's largest economy are shifting into lower gear due to a slowing world economy.
"This will raise some expectations that the ECB will be adding liquidity to the market through LTROs or even maybe a resumption of asset purchases," said Chatwell.
"It's supportive of European government bonds and also of the rally in credit markets."
Germany's 10-year government bond yield dipped to 0.16 percent, not too far from a one-month low of 0.147 percent hit at the start of February.
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