Italian bond yields slip, holding at pre-bond-buying levels

* Euro zone periphery govt bond yields

By Yoruk Bahceli

LONDON, April 22 (Reuters) – Italian yields fell on Wednesday but remained at levels seen before the European Central Bank’s emergency bond purchases began in mid-March as risk appetite improved across markets.

Euro zone bond yields moved marginally in early trade and investors looked to return to stocks after a sell-off on Tuesday caused by a crash in oil prices.

On Tuesday, Italian yields had risen to levels not seen since the ECB announced its bond purchases, as Italian Prime Minister Giuseppe Conte said the government was working on a minimum 50 billion-euro stimulus package.

European Union states are moving closer to agreeing to use their joint long-term budget to restart economic growth, but a summit on Thursday is expected to defer any final decision on contentious details.

The Italian government sees the country’s ratio of debt to gross domestic product surging by 155% to 159% this year, sources told Reuters, compared with nearly 135% at the end of last year.

Bonds were also under pressure from a 16 billion-euro bond sale via syndication, which drew record orders, and the crash in oil prices, which hurt risk assets.

Italy’s 10-year yield was down 2 basis points to 2.15% in early Wednesday trade after rising 22 basis points on Tuesday. The gap with Germany’s 10-year yield stood at around 260 basis points.

“It’s no surprise that we see a movement in the other direction today,” said DZ Bank strategist Sebastian Fellechner, citing the conclusion of Italy’s jumbo bond sale.

Germany’s 10-year yield was up 2 basis points to -0.46%

“Brent is stable this morning … this is also reflected then in the government bond market in that we see spreads are stabilizing and (core) yields are slightly higher this morning,” Fellechner said.

Brent crude oil futures rose after dropping to its lowest since 1999.

The ECB will also discuss accepting sub-investment grade collateral in its operations, according to a Bloomberg News report. Currently, the ECB accepts Greek bonds – rated junk – as collateral. That comes before S&P reviews Italy’s credit rating on Friday, currently two notches above junk, and a review in May by Moody’s, which holds the sovereign just one level above junk.

In the primary market, Spain is selling a 10-year bond via a syndicate of banks, receiving 38 billion euros of initial demand, according to a lead manager update seen by Reuters. Portugal will sell up to 1 billion euros of bonds due 2026 and 2030 in an auction and Finland will sell up to 1 billion euros of bonds due 2029. (Reporting by Yoruk Bahceli, editing by Larry King)

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