* Belgium yields 14bp below France despite lower rating
* Downgrade by Fitch is not convincing, says strategist
* Italy may need to put in 6.5 bln euro to rescue BMPS
* Greece debt relief talks to resume -eurogroup head
By Abhinav Ramnarayan
LONDON, Dec 27 Belgian bonds on Tuesday
weathered an unexpected rating downgrade, highlighting a
divergence between how the market and some credit agencies view
the country's debt profile.
Italian bonds lagged, however, with the 10-year yield rising
3 bps to 1.84 percent by 1015 GMT, after three sources close to
the matter told Reuters the government in Rome was likely to
have to put in around 6.5 billion euros ($6.79 billion) to
rescue troubled bank Monte dei Paschi di Siena.
An auction scheduled for Thursday also put pressure on
Fitch cut Belgium's rating by one notch to AA- on Friday
evening, citing its relatively high debt and upward revisions to
fiscal deficit targets.
DZ Bank strategist Daniel Lenz said he was "not at all
convinced" by the notion of cutting Belgium by one notch while
keeping France unchanged "even though (it) faces similar
Fitch earlier this month maintained France's rating at AA
with a stable outlook.
Lenz cited Belgium's "better unemployment figures, better
current account deficit and upcoming elections in France" as all
reasons why he believes Belgium should be rated at least on a
par with France.
Belgium's debt to GDP ratio is however higher at 105.8
percent compared to France's 96.20 percent, as of 2015,
according to Reuters data.
With Fitch's downgrade, France is rated a notch higher than
Belgium by three of the four main credit agencies.
However, Belgium's borrowing costs remain lower than those
of its neighbour.
At 1015 GMT on Tuesday the yield on Belgium's 10-year
government bond was flat at 0.56 percent, 14 basis points below
the French equivalent, which was also unchanged at 0.70 percent.
Two-year Greek government bond yields traded at 7.86
percent, close to recent highs, as investors reacted cautiously
to weekend comments from Eurogroup chief Jeroen Dijsselbloem
that talks about initial debt relief measures for Athens would
Debt relief was frozen mid-month over Greece's decision to
pay pensioners a Christmas bonus.
"I think overall this is positive news for the Greek
government, and it will be eventually reflected in markets.
Trading is thin at the moment so it is hard to read too much
into it," said Lenz.
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(Reporting by Abhinav Ramnarayan; editing by John Stonestreet)