The European Central Bank's potent bond-buying scheme allowed Italy and Spain to complete their challenging 2012 debt funding requirements through successful auctions on Thursday.
The ECB's pledge in September to buy unlimited quantities of short-term government bonds of vulnerable euro zone members has proven to be a game-changer for Rome and Madrid over the last couple of months.
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It again acted as an effective backstop this week when Italian Prime Minister Mario Monti's announcement to resign early unsettled Italian debt market with negative spillovers also for Spanish bonds.
A messy Italian election campaign and bigger Spanish funding needs next year will continue to test the ECB's resolve while the two countries labour to guide their respective economies out of a painful recession.
"Investors are reluctant to (be short of) Italian and Spanish bonds as an activation of the ECB's bond buying scheme in the future cannot be ruled out," said Cyril Regnat, strategist at Natixis.
Spain is widely expected to request access to the euro zone's rescue funds next year. Such expectations, together with appealing returns offered by Rome and Madrid paper and heavy redemptions, supported demand at Thursday's sales.
Rome sold nearly 3.5 billion euros ($4.56 billion) of the new BTP bond maturing December 2015 and paid a yield of 2.50 percent. This was down from 2.64 percent on a similar sale a month ago and the lowest since October 2010.
The treasury also sold 0.729 billion euros of a 15-year bond, issuing a total amount of 4.22 billion euros, just short of its top planned amount of 4.25 billion euros.
Spain issued 2 billion euros of bonds, hitting its target for the auction with borrowing costs falling on two medium-term issues but rising for a rare long bond.
Spain met its 86 billion euro funding target for 2012 in November but has continued to auction debt to cover any potential deficit slippage in 2013.
Analysts say Madrid will need to sell more debt next year than in 2012 to fund redemptions and its ailing regional governments, which have lost access to capital markets.
Italy, on the other hand, is expected to issue around 420 billion euros in 2013 to refinance its 2 trillion euros debt, less than the 465 billion euros it tapped this year.
Italian bonds were hit on Monday by expectations of political uncertainty after Monti's departure and concern about Italy's willingness to keep up with much-needed reform.
Yet, rating agency Moody's said on Thursday Monti's exit would have limited impact on Italy's sovereign credit rating as it expected the next government to continue on a reform path.
General elections are now expected in February, a few weeks earlier than what was originally planned.
The agency rated the chances of Silvio Berlusconi returning as prime minister as low. Meanwhile, a victory of the centre-left Democratic Party led by Pierluigi Bersani would likely result in a pro-reform government.
"We expect he will maintain a reform-oriented policy agenda," said Moody's, which rates Italy's sovereign debt Baa2, two notches above junk, with a negative outlook.
Analysts, however, expect debt market volatility to continue until the Italian political situation clears up.
"The run-up to the election, which is likely to take place in February, will be the biggest test for Italy's debt market since the sharp sell-off at the end of last year," said Nicholas Spiro at Managing Director at Spiro Sovereign Strategy.
Ten-year Italian yields were 331 basis points above core German yields on Thursday and Spanish yields were 407 basis points higher.
Both figures are well below year highs.