Greek deal seen easing Italian bond sales

Italy is set to benefit from improved sentiment towards lower-rated euro zone issuers when it sells bonds next week into a market buoyed by a sweeping new deal to rescue Greece and ease broader contagion fears. The long-awaited second rescue package for Greece lifted peripheral debt markets, and a range of new powers aimed at stemming the spread of the crisis was likely to smooth the sale of an estimated 10.5 billion euros of Italian debt.
"The move yesterday to increase the flexibility of the EFSF and allow it to buy bonds in the secondary market is a clear change in policy. As a result you've seen contagion fears ease significantly," said RIA Capital Markets strategist Nick Stamenkovic. In addition to an agreement for Greece, policymakers agreed that the region's bailout fund, the European Financial Stability Facility, would be able to purchase bonds on the secondary market and assist countries not in receipt of official bailout programmes.
Alongside the launch of a new three-year Italian benchmark bond, Italy will tap the 10-year sector and issue floating rate notes. The week's other issuance comes from Belgium and the Netherlands, bringing total supply to around 15 billion euros. Belgium was also seen benefiting from improved appetite for the region's higher-yielding debt at its sales of mainly longer-dated bonds, despite nagging concerns over the country's political stalemate. Reuters data shows the country has issued more than 70 percent of its annual target of 34 billion euros.
Despite the broadly positive response from financial markets to the EU's new deal for Greece, bond investors' enthusiasm faded into the Friday close over concerns about how easily the ambitious plans could be put into practice. Ten-year Italian yields gave up their early gains to stand at 5.43 percent, although they remain well short of the 6 percent mark breached in the last two weeks, which had inflamed worries about the country's sizeable debt burden. Lingering questions about implementation, should they not be addressed by the release of more details, could turn the heat back up on peripheral debt and undo some of the tightening seen in recent sessions.