Euro subdued in year-end trade, Italy bond sale eyed

28/12/2011 09:27 AST

The euro held above an 11-month low against the dollar in Asia on Wednesday, with thin year-end trade set to keep the common currency subdued ahead of an Italian bond sale later in the week.

Traders expect the embattled currency -- now 12 percent below its peak hit in early May -- to be mostly range-bound though there was room for it to come under pressure after Italy's 8.5 billion euros bond sale and German CPI on Thursday.

"The Italian auctions will be carefully watched especially with Italian 10-year yields nearing 7 percent; it will be another test of the market's appetite for what will be a feast of sovereign issuance in 2012," analysts at BNP Paribas said.

In the euro zone some 230 billion euros of bank bonds, up to 300 billion euros in government bonds, and more than 200 billion euros in collateralised debt are all maturing in the first quarter of the next year.

The 7-percent level is roughly the threshold beyond which other euro zone governments had been forced to seek bailouts and markets tend to get increasingly nervous if yields stay above this level for a prolonged period.

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