* Tightest 10-year Italy / Germany yield spread in two weeks

* Italy to sell 5.5 to 6.5 billion euros of bonds at auction

* German yields exceed US Core PCE data

* Yields on government bonds from the periphery of the euro area tmsnrt.rs/2ii2Bqr

LONDON, May 28 (Reuters) – The spread between Italian and German bond yields was at its lowest in more than a fortnight on Friday before an Italian bond auction, as the European Central Bank’s pledge of largesse helped to make lower Italy’s borrowing costs. second consecutive week.

Italy is expected to sell between € 5.5bn and € 6.5bn in 5- and 10-year bonds at an auction later on Friday, and the accommodating strengthening of the ECB in recent months should help support demand, market watchers said.

As eurozone countries have taken on debt to tackle the economic impact of the COVID-19 pandemic, this support could prove crucial, especially for countries like Italy that have already entered the crisis with heavy debt.

“Today’s offer should be welcomed, and the trend tightening should continue as the ECB’s conciliation further fuels market prices ahead of their next meeting,” Mizuho analysts said in a statement. note.

While Italian 10-year yields were slightly higher that day at 0.95%, they are still down eight basis points this week so far.

The closely watched Italy-Germany 10-year bond spreads hit their tightest levels in more than two weeks at 110 basis points.

The ECB remains committed to protecting the eurozone economy as the trajectory of the coronavirus pandemic remains uncertain and authorities should not withdraw support too soon, ECB President Christine Lagarde said on May 18 .

This helped reverse the steep selloff in Italian bonds. Ten-year rates had risen 64 basis points to 1.16% before these remarks, but fell below the 1% mark shortly after.

Beyond Italy, eurozone yields were significantly 1 to 2 basis points higher on Friday, slightly reversing the week’s declines so far, ahead of the release of the Core PCE price index in the United States at 12:30 p.m. GMT.

This is the US Federal Reserve’s “preferred measure of inflation,” according to Charalambos Pissouros, senior market analyst at JFD Group, and should provide additional clues to rising inflation in the world’s largest economy. world.

German 10-year rates rose 1.5 basis points to -0.157%, but remain comfortably below their recent one-year high of -0.074%.

Reporting by Abhinav Ramnarayan Editing by Gareth Jones



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