LONDON: Bund futures were stable on Wednesday before a sale of up to 7.25 billion euros of Italian debt, the first auction since political deadlock in the euro zone's third biggest economy prompted a cut in its credit rating last week.
Debt costs are expected to rise after Fitch cut its rating following an inconclusive election result that risks deepening recession in a country now at the heart of Europe's debt crisis.
But demand for high-yielding assets and the perceived protection offered by the European Central Bank's untested bond-buying programme is seen ensuring sufficient demand.
A good auction result would weigh on German Bunds and support Italian bonds, but traders said political uncertainty would keep markets volatile going forward.
"I would imagine it will get away, but it's not the end. We're waiting for the next political news out of Italy as the next big market mover," one trader said.
At 0703 GMT, Bund futures were 4 ticks lower at 143.00.
Germany will also sell two-year bonds later in the day.
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