The benchmark index remained in the positive territory throughout the session. It hit an intra-day high of 50,399.92, before closing at 50,365.15, up by 1.89%.

The last time KSE-100 closed above 50,000 was on May 31, 2017.

Across-the-board buying was witnessed among the index-heavy sectors including automobile assemblers, cement, chemical, commercial banks, oil and gas explorations companies and OMCs trading in the green.

On Wednesday, the KSE-100 Index closed lower by nearly 100 points to settle at 49,431.48 points, as investors opted to book profits in a volatile session.

The improvement comes in tandem with strengthening of the Pakistani rupee against the US dollar, which was hovering at the 278 level in the inter-bank market.

Experts attributed the gain at the bourse to an appreciation of the local currency and satisfactory results announced by the companies in the first quarter of the current fiscal year.

Meanwhile, improved economic indicators also played a part as Pakistan’s trade deficit for the month of September clocked in at $1.518 billion compared to a deficit of $2.856 billion from the same month previous year, improving by nearly 47% YoY, according to the latest data released by the Pakistan Bureau of Statistics (PBS) on Wednesday.

Earlier, brokerage house Topline Securities predicted that the bourse could potentially come close to the 50,000 level near the general elections, assuming there is a “smooth election process” and the IMF approves the next tranche of the Stand-By Arrangement in November.

“We believe the Pakistan market can potentially experience an 8-10% pre-election rally thereby, has the potential to reach near 50k assuming a smooth election process and the approval of the IMF tranche in November,” said Topline Securities then.

Volume on the all-share index increased to 427.4 million from 332.6 million a day before.

The value of shares traded rose to Rs14.6 billion from Rs8.8 billion in the previous session.

K-Electric Ltd. remained the volume leader with 83.1 million shares, followed by Pak Refinery with 37.6 million shares and WorldCall Telecom with 25.8 million shares.

Shares of 361 companies were traded on Thursday, of which 255 registered an increase, 94 recorded a fall, while 12 remained unchanged.

The company had said early this month the debt level would drop below 600 billion yuan by the end of June, achieving one of the three debt ratio caps set by regulators and coming close to its year-end target of 560 billion yuan.

China's most indebted property developer vowed last year to cut its debt by 150 billion yuan annually for three years, targetting to achieve all three caps by end of 2022.

Evergrande has been scrambling for cash as Beijing tackles what it considers excessive borrowing in the real estate development sector with planned new debt-ratio caps dubbed the "three red lines".

Last week, Evergrande said it had arranged its own funds of $1.75 billion to repay its $1.5 billion offshore bonds due on Monday, as well as to pay interest on all other dollar bonds.

Investors became increasingly worried about the developer's financing capability when it confirmed earlier this month some of its project companies' commercial paper had not been repaid on time, but it was arranging payments.

In a filing published on Tuesday, supplier Skshu Paint Co said client Evergrande had not repaid 49 million yuan of commercial bill that matured in the first quarter on time as of May 31, as "individual major property developers faced liquidity difficulties".

Responding to Reuters about the late payment, Evergrande said all the related commercial bills to Skshu Paint have now been fully repaid.

The primary balance, which excludes interest payments, showed a surplus of 35.93 billion lira in February, the data showed.

After the central bank cautiously relaxed guidance advising lenders against dividends just weeks before results season, investors had been widely expecting a restoration of dividends from some lenders but were less certain about others, including Absa, whose capital position is not as strong as some peers.

"Given the group's focus on preserving capital, it did not declare an ordinary dividend for the period," Absa said, adding however it had delivered "respectable" progress against a turnaround strategy adopted in 2018 and this had good traction in some parts of the business.

Pre-provision profits, a key metric being watched by investors who want to get a sense of banks' underlying performance without the impact of hefty COVID-19 bad debt costs, rose 7%.

As well as a spike in credit impairments, South African lenders have struggled with slowing fee and loan growth and interest rate cuts.

Like others, Absa has set its sights on the rest of the continent for growth. But continental operations did not bolster earnings as they did for peers like Standard Bank. South African earnings fell 50%, compared to 54% at its African operations.

Overall it reported a 58% decline in headline earnings per share - the main profit measure in South Africa - to 730.9 cents in the year to Dec. 31, around the middle of its forecast range and compared to 1750.1 cents a year earlier.

This was driven by a 163% increase in credit impairments, which hit 20.6 billion rand.

The bank also said that, following a review of its strategy sparked by the pandemic, beyond 2021 it would place more emphasis on digital distribution, investing in a new technology architecture, and on building a diverse market footprint.

The funds, which are both based in the northern state of Queensland, said they would manage a combined A$200 billion ($156 billion) in retirement money for two million Australians, about a sixth of the country's workforce, when they join later this year.

The mega-merger reflects the rapid consolidation of Australia's A$3 trillion pension industry after a 2018 inquiry found fees charged by some managers were unjustified and eroded workers' savings, and that many funds were not putting customers' interests ahead of their own.

The government has since made it mandatory for funds to put member interests first, triggering a wave of mergers as fund boards determine that scaling up results in a better deal for people's savings.

"The due diligence process we have undertaken demonstrates a strong business case for merging with achievable efficiencies and savings," said QSuper Chair Don Luke and Sunsuper Chair Andrew Fraser in a statement.

The merger would "pave the way for the creation of an unquestionably strong superannuation fund with the scale to deliver outstanding services, greater efficiencies and lower costs for members", they added.

The statement said Luke will become chair of the merged fund.

The merger, scheduled for September, will see the combined fund eclipse AustralianSuper, which has A$191 billion under management, according to Canstar, and has been the largest fund for several years. The next largest fund has A$126 billion.

The Chinese-ruled city's recovery hopes are now pinned on coronavirus vaccines. Often-violent protests and US-China trade tensions in 2019 had plunged the global financial hub into recession even before the pandemic hit.

Chan told legislators he expected the budget deficit for the upcoming year to hit HK$101.6 billion ($13.10 billion), smaller than the record HK$257.6 billion expected for 2020/21.

Pandemic relief measures, including cash handouts to residents and tax breaks and other benefits to businesses, left the city with a much deeper deficit last year than the planned HK$139.1 billion.

"With the epidemic still lingering, our economy is yet to come out of recession," Chan said in his budget speech. "This year's budget focuses on stabilising the economy and relieving people's burden."

To support a recovery in consumer and business activity, spending in the coming year includes HK$5,000 vouchers to residents, cuts in the profits and salaries tax, and a waiver on business registration fees. The tourism and technology sectors will also receive some support.

On the revenue side, the government will increase the stamp duty for stock trading to 0.13% from 0.1%.

Hong Kong usually runs balanced budgets or surpluses, since its pegged currency system commits it to fiscal prudence. Its fiscal reserves are expected at HK$902.7 billion at the end of March 2021 and fall to HK$775.8 billion by end-March 2026.

Hong Kong's economy was expected to expand by 3.5% to 5.5% this year and run at an average growth rate of 3.3% annually from 2022 to 2025.

Gross domestic product (GDP) shrank 6.1% in 2020, its worst annual performance on record since 1962.

US-China tensions and uncertainty related to how a game-changing national security law introduced last year could affect non-Chinese investment appetite in the global financial hub remain significant risks for the recovery, analysts say.

Hong Kong begins its vaccine rollout this week, having secured a total of 22.5 million doses of COVID-19 vaccines from Pfizer, Sinovac and AstraZeneca, lagging other developed cities.

An economic monster in the second half of the 20th century, inflation has not been a major issue for several decades.

But headline inflation in the 19-nation eurozone hit 0.9 percent in January -- a month after prices had fallen 0.3 percent -- mostly owing to a spike in energy costs.

And in a little over a week, the yield on benchmark 10-year US Treasury notes has climbed to 1.39 percent, the highest in a year.

That pulled the German 10-year rate, Europe's standard, to -0.28 percent, last seen in June 2020 and a level that nonetheless still shows investors are willing to take a small loss to lend Berlin money.

The reasons for the rises are multiple, including US President Joe Biden's huge financial stimulus plan, as well as improving global economic indicators, vaccine rollouts and falling infection rates.

Together, they suggest that upward pressure on consumer prices could increase in the months to come.

"There is tension on producer prices, with a leap in cargo costs on Chinese trade routes and strong pressure on raw material prices," noted Tangi Le Liboux, a strategist at the Aurel BGC brokerage.

He told AFP that energy prices could also pursue their current upward trend.

"US consumption could rebound faster than expected," Le Liboux said, adding that "the main question is whether this price hike will be temporary and limited in nature".

At any rate, the official inflation target of around 2.0 percent established by the European Central Bank and US Federal Reserve still appears to be some ways off.

In the US, consumer prices gained 0.4 percent in December from the previous month, but were just 1.3 percent higher on a 12-month basis.

In the eurozone, inflation entered positive territory in January after five months below zero.

Gita Gopinath, chief economist at the International Monetary Fund considers it "unlikely" that inflation will exceed the Fed's target on a prolonged basis.

Crash risk warning

But more than the yield increases themselves, which do suggest market expectations of future price hikes, it was the speed at which they rose that attracted attention.

"If there is a sudden acceleration in yields, that is when the markets might crash," Le Liboux said. The market for sovereign debt has ticked along for months with extremely low rates.

"If the 10-year US yield continues to rise and the Fed leaves its key indicators unchanged, it will come under pressure and at some point could have its credibility called into question," the strategist said.

The US central bank has already indicated it could tolerate above-target inflation for a certain period without raising its benchmark lending rates.

But "if the markets begin to think the Fed is behind the curve or is getting it wrong", panic might set in because investors could begin "to anticipate that monetary tightening will happen faster than expected", he said.

Monetary tightening occurs when central banks raise lending rates to curb inflation.

Given unprecedented amounts of financial stimulus, inflation will eventually increase, but not this year and "probably not even next year", he said.

"Inflation potential can only come if there is an issue in terms of resources, in particular if there is more or less full employment and that something we are not seeing right now," Blanco explained.

Fed chairman Jerome Powell said earlier this month: "We are still very far from a strong labour market."

Nicolas Colas, co-founder of US financial data provider DataTrek, said: "We should expect 10-year yields to continue to rise -- they've been hibernating long enough."

But he emphasised that the current situation was considerably different to when the last global economic crisis began to ease in 2009, and "they basically doubled in six months".

Yellen "emphasized the importance of the transatlantic partnership and conveyed her intention to deepen US-European cooperation on key policy challenges, including ending the pandemic, supporting a strong global economic recovery, fighting income inequality, and forcefully addressing the threat of climate change," the Treasury said in a statement.

Yellen committed to re-engaging in discussions on international taxation to forge a timely international accord, and to seek solutions to key bilateral trade issues, it said.

From March to May, the government will remove a luxury tax for sales of sedans and two-wheel drive cars with engine power below 1,500 cc, according to a statement from the coordinating ministry of economic affairs late on Thursday. The current luxury tax rates for such sales range between 10% to 30%.

In the next three months after that, the government will give a 50% discount for luxury tax payments and the following three months, the discount will be halved, the ministry said, adding that the scheme would be evaluated every three months.

Car sales in Southeast Asia's largest economy have recovered after a dramatic plunge at the beginning of the pandemic, but have yet to return to pre-pandemic levels. Total sales in 2020 were just over 532,000 units, about half of the previous year.

The economic ministry said the auto industry is important for Indonesia's economy, with car makers, dealers and workshops providing employment for 1.5 million people. The tax incentive could boost production by 81,752 units, the ministry said.

Indonesia's gross domestic product contracted for the first time since the 1998 Asian financial crisis last year, by 2.07%, as the pandemic dealt a blow to household consumption and investment.

The car market in Indonesia is dominated by Japanese brands, with Toyota, Daihatsu, Mitsubishi and Honda leading sales.

The automakers association Gaikindo had previously been pushing the government for months for tax breaks to entice buyers.

Gaikindo and car companies were not immediately available to comment due to public holiday.

Analysts polled by Reuters had predicted new yuan loans would jump to 3.5 trillion yuan in January, up from 1.26 trillion yuan in the previous month and 3.34 trillion yuan a year earlier.

Broad M2 money supply in January grew 9.4% from a year earlier, central bank data showed on Tuesday, below estimates of 10% in the Reuters poll. It rose 10.1% in December.

Outstanding yuan loans grew 12.7% from a year earlier compared with 12.8% growth in December. Analysts had expected 12.7% growth.

"We expect the large fiscal support to be unwound gradually, but downside risks to growth exacerbate the challenge of placing the debt ratio on a downward path over the medium term," the ratings agency said.

Fitch said government debt jumped to 254.8% of gross domestic product last year from 231.2% in 2019, the industrial world's heaviest public debt burden.

The debt-to-GDP ratio will peak at 258.6% in 2023, before turning to a gradual downtrend, assuming continued low interest rates, the agency added.

The government's target of achieving a primary budget surplus by the fiscal year 2025 appears "well out of reach", as suggested by the Cabinet Office, which has projected primary deficits throughout this decade.

The high public debt ratio has not created financing strains so far, as low interest rates have prevented a rise in debt-servicing costs in a low-growth economy.

The world's third largest economy is expected to have shrunk 5.3% in 2020, followed by a rebound of 3.5% this year and 1.5% next, backed by exports, Fitch said.

Fitch said it assumed yields will stay low over the next few years given continued money printing by the Bank of Japan, despite the risk of high debt, leaving the economy vulnerable to future tightening of financial conditions.

The ratings agency said it expected the BOJ to maintain its current monetary policy settings over the coming year with its yield curve control, large-scale purchases of JGBs and riskier assets such as exchange-traded funds (ETFs) and J-REITs.

The BOJ has unveiled a plan to conduct an assessment of its monetary policy in March with the aim of enhancing effectiveness and sustainability of its policies, which Fitch said would likely result in only minor changes to the bank's operations.

Alibaba flagged a price range of 130 basis points over US 10-year Treasuries for the 10-year tranche and 140 basis points over US 20-year Treasuries for the 20-year tranche.

It is selling the debt in four tranches which also includes 30 and 40-year bonds, the term sheet showed.

Investor response to the deal will test sentiment towards Alibaba founder Jack Ma's business empire amid regulatory scrutiny triggered by a speech in late October that publicly criticised the country's regulatory system.

That set off a chain of events that resulted in the halting of affiliate Ant Group's $37 billion stock market listing.

A final price for the bonds is expected to be set later on Thursday, according to a source with direct knowledge of the matter who is not authorised to speak to the media.

Given the transition to new leadership in the Biden administration, the Treasury needs more time to evaluate its position on the taxes, Bloomberg said, citing government lawyers as saying in a filing with Washington federal court.

House Democrats have been examining whether Trump's business dealings involved money laundering or left him vulnerable to foreign influence.

The Shanghai Interbank Offered Rate (SHIBOR) for the one-week tenor, the Chinese yuan equivalent of Libor, fell to 2.241%, the lowest level since Jan. 18, compared with a near six-year high of 3.194% in previous session.

The volume-weighted average rate of benchmark seven-day repo traded in the interbank market dropped to a two-week low of 2.2285% at midday, compared with the previous close of 3.1656%.

Short-term funding cost in China started to pick up earlier last week as the central bank refrained from making its usual substantial liquidity injections to meet high demand for cash ahead of the week-long Lunar New Year holidays, which starts on Feb. 11 this year.

Due to coronavirus fears, authorities are seeking to discourage people from travelling or visiting too many friends and relatives during the break, which should lessen demand for cash this year.

Some analysts say this is one of the reasons why there has been no reduction in the banks' reserve requirement ratio (RRR) ahead of the holiday this year. The other reasons include a desire to avoid creating excess liquidity that could fuel potential bubbles in the property and share markets.

On Tuesday, the People's Bank of China (PBOC) injected a net 78 billion yuan ($12.07 billion) into money markets through open market operations, bringing total net injection to 176 billion yuan so far this week. But it drained a total of 216.5 billion yuan in January.

Yuan borrowing also declined in Hong Kong. The CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) for overnight tenor fell to 2.34183%, down from 3.64591% on Monday.

Hong Kong Monetary Authority's (HKMA) 10 billion yuan quota for intra-day yuan funding has been utilised less than 30% on Tuesday morning, according to Refintiv data.

The volume-weighted average rate of benchmark seven-day repo traded in the interbank market rose to 3.1955% in early trade, its highest since April 2015, compared with the previous close of 3.1587%. By midday, it traded at 3.1713%.

The Shanghai Interbank Offered Rate (Shibor) for the same tenor, the Chinese yuan equivalent of Libor, rose to 3.194%, its highest since April 2015, from 3.071% on Friday.

On Monday, the People's Bank of China (PBOC) net injected 98 billion yuan ($15.17 billion) worth of seven-day reverse repos after draining a total of 216.5 billion yuan from financial system in January.

The drain last month prompted some speculation that a shift to a tighter monetary policy stance may be underway, but some analysts said tighter cash conditions could suggest that the authorities were wary of risks of asset bubbles.

"We expect the PBOC to keep the money market balanced to limit excessive risk taking," said Eugenia Victorino, head of Asia strategy at SEB in Singapore.

"Financial discipline, not monetary policy tightening, will keep financial conditions tight."

PBOC adviser Ma Jun said last week that risks of asset bubbles will remain if China doesn't make appropriate shifts in its monetary policy stance amid recent fast-growing leverage.

"Tight funding situation should ease after month-end effect faded, fund conditions will be stable before the Lunar New Year holiday," said Ming Ming, head of fixed income research at CITIC Securities.

Ming expected the general liquidity to be balanced with a tightening bias around the holiday, with money rates fluctuating either side of policy rates.

Seven-day reverse repo rate, one of the PBOC's main policy rates, now stands at 2.2%.

Signs of liquidity stress were also seen in offshore markets. Hong Kong Monetary Authority's (HKMA) 10 billion yuan quota for intra-day yuan funding has been nearly used up as of 0300 GMT, according to Refintiv data.

The volume-weighted average rate for the overnight tenor remained elevated, although it was down 53 bps at 2.7994% from a near six-year high of 3.3334% at the previous close.

FDI pledges - which indicate the size of future FDI disbursements - dropped nearly 60% from a year earlier to $2.02 billion, the ministry said in a statement.

The ratio of 2020 government debt to GDP stood at 45.8%, the ministry said in a statement on its website, adding that it would maintain a stable macro leverage ratio.

Unlike the past few years, the central bank has not been making net liquidity injections into the banking system to meet strong demand for cash heading into the long Lunar New Year holiday.

In fact, it has been draining funds, catching traders by surprise.

The holiday starts on Feb. 11 this year.

On Wednesday, the volume-weighted average rate of China's benchmark overnight repurchase agreements, or repo, traded in the interbank market climbed to 2.9930% in afternoon trade, up 21.84 basis points on the day and the highest since April 1, 2015.

The seven-day repo jumped to 6.0%, its highest since June 27, 2018.

China's major stock indexes had surged more than 4% this month before pulling back in the last few days.

"Cash conditions are very tight today," said a trader at a foreign bank.

"Investors have given up on hopes for high-profile liquidity support before Lunar New Year."

The People's Bank of China (PBOC) injected 180 billion yuan ($27.86 billion) via open market operations earlier in the session, in contrast to a minimal daily 2 billon yuan in previous sessions, but it still withdrew 100 billion yuan on a net basis as 280 billion yuan was set to expire.

The PBOC said the injection was meant to "keep banking system liquidity reasonably ample" as fiscal expenditure increased significantly towards the month-end.

A second trader at a Chinese bank said the PBOC's moves suggested regulators were keen to reduce leverage in the financial markets as many investors had bet on relatively loose monetary conditions before the holiday.

PBOC adviser Ma Jun said this week that risks of asset bubbles will remain if China doesn't make appropriate shifts in its monetary policy stance amid recent fast-growing leverage. "It's the precursor that China's central bank is starting to normalise its monetary policy," said Marco Sun, chief financial market analyst at MUFG Bank.

Other economists also warned that the central bank would gradually shift its policy stance this year after massive emergency measures to cushion the shock from the coronavirus pandemic in 2020.

"Monetary policy in 2021 will be a gradual normalisation contingent on COVID-19," said Lu Ting, chief China economist at Nomura.

"With the reimposition of lockdowns and travel bans due to the most recent wave of the COVID-19, we think the PBOC will slow its normalisation at the margin."

Most analysts do not expect China to raise benchmark interest rates this year and risk derailing an economic recovery, but policy sources say the PBOC will cool credit growth while the government is likely to reduce fiscal stimulus.

However, the state-run Securities Times in a front-page commentary urged investors not to over-exaggerate the impact of the central bank's short-term liquidity operations on stock and bond markets.

It expected the PBOC to resume 14-day reverse repo and conduct medium-term lending facility (MLF) operations to increase liquidity and push down funding costs to more reasonable levels.

Signs of liquidity stress onshore led a spillover effect to the offshore market, lifting yuan borrowing costs in Hong Kong. The CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) for overnight tenor rose to a one-week high of 2.98250%.

However, in December the company once again saw a drop in hospital visits as a second wave of coronavirus gripped its South African business and parts of international operations, it said.

It did not disclose the expected change in net profit or revenue.

"In plenary cabinet meeting and in other meetings, we've decided the size to be 553.09 trillion rupiah. It means the government sees that economic recovery in 2021 needs a similar support than in 2020," Airlangga Hartarto, Indonesia's chief economic minister, told a business forum.

The previously approved budget for the programme in 2021 was 372.3 trillion rupiah, although authorities have said this may swell after President Joko Widodo announced he wanted to run the mass vaccination campaign for free.

In 2020, the government allocated 692.5 trillion rupiah for the programme, which included the upgrading of hospitals and provision of medical equipment and services to fight the pandemic, but spent only about 579.78 trillion rupiah.

Indonesia is set to officially surpass one million coronavirus cases on Tuesday. The country's figures for COVID-19 infections and deaths are some of the highest in Asia.

In his presentation, Airlangga unveiled plans to quadruple health spending to 104.7 trillion rupiah.

The authorities have also increased the budget for social assistance from 110.2 trillion rupiah to 150.96 trillion rupiah.

At the same forum, Febrio Kacaribu, a finance ministry official, estimated the fiscal deficit for 2021 would be 5.7% of gross domestic product, unchanged from the ministry's previous outlook.

Last year's budget deficit was estimated at 6.1% of GDP, the widest in decades as Jakarta ramped up spending to help Southeast Asia's largest economy weather the impact of the pandemic.

The economy suffered its first recession since 1998 last year. The government expects the economy to grow 5% this year, far better than a forecast contraction of 1.7% to 2.2% in 2020.

The volume-weighted average of the overnight repo, considered one of the best indicators of general liquidity in China, jumped to 2.6890%, the highest since Nov. 18, 2019. The rate closed at 2.4955% on Monday.

Other tenors also following the rising trend. The volume-weighted average of the seven-day repo rose to 2.7091% as of 0228 GMT, the highest since Jan. 15, 2020, from 2.4218%.

"All sorts of people stand to lose a lot" should leaders continue to split apart the world's two largest economies, said Adam Lysenko, associate director of research firm Rhodium Group.

It wrote the report released by the National Committee on U.S-China Relations, an influential Washington group of business and diplomatic leaders. Ties between the two countries are under strain on a host of issues, including human rights and trade rules.

The report estimates US investors held $1.2 trillion in equity and debt securities issued by Chinese entities at the end of 2020, five times the levels shown in official data from the US Treasury Department. Most of the difference was due to Chinese firms "using complex legal structures to issue shares out of tax havens that trade on US exchanges," according to the report.

Chinese holdings of US securities, meanwhile, were as much as $2.1 trillion at the same point, 36% more than official figures suggest. Most of the difference was due to "equity investments misclassified in official sources due to investor efforts to circumvent Beijing's capital controls or the use of Hong Kong as an investment intermediary," according to the report.

Financial integration between the two economies, however, is also low, due to capital controls, Lysenko said. Were policy loosened, the two countries' combined portfolio investments would total more than $9 trillion, compared with about $3 trillion currently, he said.

In office less than a week, Biden's foreign-policy and trade teams have inherited a series of hardline policies put in place by the administration of former US President Donald Trump.

An executive order from November requires US investors to divest from 44 companies allegedly linked to China's military, but conflicting statements from agencies handling its rollout spurred confusion among shareholders.

Few investors expect the new administration to roll back any rules quickly, and administration officials have given little official guidance.

Other European government bond yields were also lower, but the drop was more moderate, with peripheral countries roughly in line with the core, tracking U.S. Treasuries.

Italian Prime Minister Giuseppe Conte told reporters he was working on a new coalition pact to last until the end of the legislature and said he was convinced that unity could be restored if there was goodwill from all sides.

Ten-year Italian government bond yields were down 8 basis points to 0.55pc after a 10 bps rise on Tuesday delivered their worst session since early November.

Five-year Italian yields returned to negative territory after rising above zero for the first time since mid-November on Tuesday.

Although Tuesday's moves reflected political uncertainty, this has not materially raised the likelihood of a snap election, bond analysts said.

Investors likely took the opportunity to take profits on Italian government bonds, analysts said, after the risk premium recently fell to its lowest since 2016, below 100 bps.

The closely-watched gap between 10-year Italian and German yields, effectively the risk premium on Italian debt, was at 106 bps after hitting 111 bps, its highest in nearly a week.

"If Renzi leaves the government, it could trigger a reshuffle and a new government, but the impact on the Italian government bonds should not be long lasting," Jens Peter Sorensen, chief strategist at Danske Bank in Copenhagen, said.

"We expect the spread to stabilise as this is more on internal political noise in the Italian government rather than Italy's commitment to Europe."

In higher-rated markets, benchmark German 10-year yields fell 5 basis points after rising on Tuesday in tandem with U.S. Treasuries.

Government debt sales were also in focus, with Spain due to place 10 billion euros ($12 billion) of benchmark bonds maturing in April 2031 to final demand of 56 billion euros, a Treasury source told Reuters, well below last April's record books and initial demand earlier in the day.

Germany raised 4.066 billion euros from a new five-year bond auction, while Portugal raised 1.25 billion euros from the reopening of bonds due 2030 and 2035.

The European Central Bank is keeping a close eye on exchange rate developments and their negative impact on inflation, ECB policymaker Francois Violleroy de Galhau said on Wednesday.

President Christine Lagarde also warned not to target the bloc's exchange rate.

The government last week announced new stimulus worth $7 billion to support domestic activity hit by the spread that has infected 9,450 in just over a month.

The bonds will be offered in three maturities, with five- and 10-year bonds giving an average coupon of 2.0% and 2.5% per year, respectively, and 15-year bonds offering a fixed coupon of 1.8%, the ministry said in a statement.

"The bonds should be sold out as they are secure and offer good returns," Patricia Mongkhonvanit, head of the ministry's public debt management office, told a briefing.

The new stimulus will also be financed by other borrowing, including government bonds and some from an earlier loan from the Asian Development Bank, she said.

All of the debt is under a 1 trillion Thai baht ($33.37 billion) borrowing plan announced last year in response to the pandemic.

Of that, about 394 billion baht had been obtained and the remainder will be acquired in the current fiscal year, Patricia said, adding 373 billion baht had been disbursed so far.

The country's public debt to gross domestic product (GDP) will not exceed 56% at the end of this fiscal year that ends in September, she said. The debt stood at 50.46% of GDP as of November last year.

The market remained under pressure even after a decent result of JGB auction on Friday, in which the Ministry of Finance offered an additional amount of some existing JGBs with one to five years left to maturity.

The tenders were 4.78 times oversubscribed, compared with 3.59 times last time.

The five-year yield rose 0.5 basis point to minus 0.115%. The 10-year JGB yield rose 0.5 basis point to 0.035%.

The 20-year JGB yield rose 1 basis point to 0.440%.

The two-year JGB yield was flat at minus 0.140%.

At its policy meeting, the ECB kept its deposit rate unchanged at -0.5% and maintained the overall quota for bond purchases under the Pandemic Emergency Purchase Programme (PEPP) at 1.85 trillion euros, as expected.

But in its policy decision, "if favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full," the ECB said.

The ECB has made similar statements before, but including the phrase in the policy decision text brought it into focus.

"When there are small changes, markets tend to focus on them. And while there was nothing new in the wording... the fact that it was lifted to the statement from the opening remarks in December was mostly likely because the hawks wanted it there," said Andreas Steno Larsen, global chief FX and rates strategist at Nordea.

"So it carries a bit of significance even if it is a minor detail."

Italian bond yields -- among the biggest beneficiaries of ECB bond buying -- jumped 6 basis points to their highest since December 2. German bond yields also rose, with the 10-year benchmark yield touching an eight-day high at -0.487%.

Expectations that the ECB will purchase more than the net issuance from euro zone governments have kept borrowing costs for countries such as Italy at or near record lows, even as the they take on record-high levels of debt to tackle the pandemic.

"Where it matters for the market is that prior assumptions of the ECB swallowing all of net supply in EU in 2021 - that is now dependent on the state of the economy," said Rishi Mishra, interest rates strategist at Futures First Info Services.

Bond yields initially came off session highs as Lagarde emphasized that while PEPP may not be used in full, it may equally be re-calibrated, but rose again after the press conference.

While the ECB broadly kept to its economic forecasts from December, Lagarde also said that risks to the economy remained tilted to the downside but were "less pronounced", which may have also helped push bond yields higher.

The euro rose as much as 0.5% on the day following the decision, with the ECB reiterating that it closely monitors the euro exchange rate.

Euro zone stocks reduced gains after Lagarde's comments on the economic outlook, reaching a session low. They were last flat on the day.

Given delays in vaccination programmes and variants that have made the coronavirus more infectious, the ECB "remains very likely to spend the full envelope allocated to the PEPP as well as ease policy further via other tools in the coming months," said Fidelity International's global economist, Anna Stupnytska.

Prime Minister Giuseppe Conte narrowly won a confidence vote in the upper house Senate on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.

Italian benchmark 10-year bond yields dropped to their lowest since Jan 11 - before Conte lost his majority - at 0.533%, down 2 basis points on the day.

That pushed the closely watched gap between Italian and German 10-year yields - effectively the risk premium on Italian debt - down to 105 basis points, also the lowest in a week.

But even though the confidence vote is out of the way, Conte failed to secure an absolute majority and now heads a minority government. That has turned focus to how much the government might struggle to implement its policy programme at a time of national emergency.

"Enthusiasm for carry and yield hunting is not likely to reemerge forcefully in the short term, given the government emerges weaker from the vote and considering the focus on reflation trades in the US," UniCredit analysts led by Italy chief economist Loredana Maria Federico told clients.

"Demand from foreign investors is not likely to pick-up strongly either as long as the political picture remains unclear," they added.

They still expect Italy's risk premium to tighten slowly, given the yield pick up Italy offers over mostly negative-yielding government bonds in the euro area, and the level of liquidity in the market thanks to the ECB's bond buying.

There was also focus on a story by Bloomberg News, which reported the European Central Bank is conducting its bond purchases with specific yield spreads in mind, a strategy that would be reminiscent of yield curve control.

Analysts suggested that may have also played a role in pulling down Italian borrowing costs from last week's highs.

Many fund managers last week told Reuters they held onto their Italian bonds during the turmoil and with early elections unlikely, and saw any rise in the risk premium as an opportunity to buy Italian bonds at better value.

Elsewhere, German 10-year bond yields, the benchmark for the euro area, were unchanged at -0.53%.

Germany will re-open a 30-year bond later in the session via auction.

Foreign investors held $7.053 trillion in Treasuries in November, down from $7.068 trillion the previous month. Japan's holdings, the largest non-US holder of Tresuries, slipped to $1.260 trillion in November from $1.269 trillion in October.

Bahrain hired Bank ABC, Citi, Gulf International Bank, HSBC, JPMorgan, National Bank of Bahrain and Standard Chartered to arrange investor calls starting on Tuesday, a document from one of the banks showed.

An issuance comprising benchmark tranches of seven years, 12 years and/or 30 years will follow, subject to market conditions, the document said. Benchmark generally means at least $500 million.

The liquidity-enhancing auction, in which the Ministry of Finance sells an additional amount of existing JGB issued strong bids, traders said.

Biden outlined a $1.9 trillion stimulus package proposal, including some $1 trillion in direct relief to households, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines.

"His comments were in line with what's been already reported and didn't become a fresh factor to sell bonds," said Katsutoshi Inadome, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

The 10-year JGB yield fell 0.5 basis point to 0.025%, while the 20-year JGB yield was flat at 0.410%.

At the shorter end, the two-year yield fell 0.5 basis point to minus 0.130% while the five-year yield was flat at minus 0.105%. The 30-year yield bucked the overall trend to rise 0.5 basis point to 0.645%.

Benchmark 10-year JGB futures price ended up 0.01 point to 151.85.